☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2022
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Roku, Inc.
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Delaware | 26-2087865 | |||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Title of Each Class: | Trading Symbol(s): | Name of Exchange on Which Registered: | ||||||
Class A Common Stock, $0.0001 par value |
| The Nasdaq Global Select Market |
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Large Accelerated Filer | ☒ | Accelerated filer | ☐ | |||||||||||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||||||||
Emerging growth company | ☐ |
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PART I. | |||||||||||
Item 1. | |||||||||||
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Item 2. |
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Item 3. | |||||||||||
Item 4. | |||||||||||
PART II. | |||||||||||
Item 1. | |||||||||||
Item 1A. | |||||||||||
Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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Report.
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•our financial performance, including our revenue, cost of revenue, operating expenses, and our ability to maintain and grow our profitability; |
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•the impact of the COVID-19 pandemic, supply chain disruptions, inflationary pressures, and geopolitical conflicts on our business, operations, and the markets and communities in which we and our advertisers, content providers, Roku TV brand partners, other device licensees, manufacturers, suppliers, retailers, and users operate; |
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•our ability to attract and retain users and increase streaming hours; |
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•our ability to attract and retain advertisers; |
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•our ability to attract and retain TV brands and service operators to license and deploy our technology; |
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•our ability to produce or acquire rights to distribute popular content on our platform on favorable terms, or at all, including the renewals of our existing agreements with content publishers; |
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•changes in consumer viewing habits and the growth of TV streaming; |
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•the growth of our relevant markets, including the growth in advertising spend on TV streaming platforms, and our ability to successfully grow our business in those markets; |
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•our ability to adapt to changing market conditions and technological developments; |
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•our ability to develop and launch new products and provide ancillary services and support; |
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•our ability to integrate acquired businesses, products, and technologies; |
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•our ability to compete effectively with existing competitors and new market entrants; |
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•our ability to successfully manage domestic and international expansion; |
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•our ability to attract and retain qualified employees and key personnel; |
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•our ability to address potential and actual security breaches and system failures involving our products, systems and operations; |
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•our ability to maintain, protect, and enhance our intellectual property; and |
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Statements
thousands, except par value data)
|
| As of |
| |||||
|
| March 31, 2021 |
|
| December 31, 2020 |
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Assets |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 2,077,514 |
|
| $ | 1,092,815 |
|
Restricted cash |
|
| 83 |
|
|
| 434 |
|
Accounts receivable, net of allowances of $28,256 and $41,236 as of |
|
| 496,173 |
|
|
| 523,852 |
|
March 31, 2021 and December 31, 2020, respectively |
|
|
|
|
|
|
|
|
Inventories |
|
| 41,246 |
|
|
| 53,895 |
|
Prepaid expenses and other current assets |
|
| 134,375 |
|
|
| 26,644 |
|
Total current assets |
|
| 2,749,391 |
|
|
| 1,697,640 |
|
Property and equipment, net |
|
| 155,001 |
|
|
| 155,197 |
|
Operating lease right-of-use assets |
|
| 265,237 |
|
|
| 266,197 |
|
Intangible assets, net |
|
| 79,255 |
|
|
| 62,181 |
|
Goodwill |
|
| 125,684 |
|
|
| 73,058 |
|
Other non-current assets |
|
| 112,577 |
|
|
| 16,269 |
|
Total Assets |
| $ | 3,487,145 |
|
| $ | 2,270,542 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 96,468 |
|
| $ | 112,314 |
|
Accrued liabilities |
|
| 477,402 |
|
|
| 347,668 |
|
Current portion of long-term debt |
|
| 6,125 |
|
|
| 4,874 |
|
Deferred revenue, current portion |
|
| 48,121 |
|
|
| 55,465 |
|
Total current liabilities |
|
| 628,116 |
|
|
| 520,321 |
|
Long-term debt, non-current portion |
|
| 87,398 |
|
|
| 89,868 |
|
Deferred revenue, non-current portion |
|
| 22,618 |
|
|
| 21,283 |
|
Operating lease liability, non-current portion |
|
| 303,159 |
|
|
| 307,936 |
|
Other long-term liabilities |
|
| 4,542 |
|
|
| 3,119 |
|
Total Liabilities |
|
| 1,045,833 |
|
|
| 942,527 |
|
Commitments and contingencies (Note 12) |
|
|
|
|
|
|
|
|
Stockholders’ Equity: |
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value |
|
| 13 |
|
|
| 13 |
|
Additional paid-in capital |
|
| 2,697,380 |
|
|
| 1,660,379 |
|
Accumulated other comprehensive income |
|
| 29 |
|
|
| 29 |
|
Accumulated deficit |
|
| (256,110 | ) |
|
| (332,406 | ) |
Total stockholders’ equity |
|
| 2,441,312 |
|
|
| 1,328,015 |
|
Total Liabilities and Stockholders’ Equity |
| $ | 3,487,145 |
|
| $ | 2,270,542 |
|
As of | |||||||||||
March 31, 2022 | December 31, 2021 | ||||||||||
Assets | |||||||||||
Current Assets: | |||||||||||
Cash and cash equivalents | $ | 2,235,092 | $ | 2,146,043 | |||||||
Accounts receivable, net of allowances of $35,338 and $56,827 as of | 675,705 | 752,393 | |||||||||
March 31, 2022 and December 31, 2021, respectively | |||||||||||
Inventories | 72,863 | 50,276 | |||||||||
Prepaid expenses and other current assets | 119,127 | 105,795 | |||||||||
Total current assets | 3,102,787 | 3,054,507 | |||||||||
Property and equipment, net | 186,308 | 177,567 | |||||||||
Operating lease right-of-use assets | 401,154 | 345,660 | |||||||||
Intangible assets, net | 79,659 | 84,126 | |||||||||
Goodwill | 161,519 | 161,519 | |||||||||
Other non-current assets | 294,821 | 258,766 | |||||||||
Total Assets | $ | 4,226,248 | $ | 4,082,145 | |||||||
Liabilities and Stockholders’ Equity | |||||||||||
Current Liabilities: | |||||||||||
Accounts payable | $ | 137,550 | $ | 124,921 | |||||||
Accrued liabilities | 574,848 | 549,055 | |||||||||
Current portion of long-term debt | 88,648 | 9,883 | |||||||||
Deferred revenue, current portion | 54,408 | 45,760 | |||||||||
Total current liabilities | 855,454 | 729,619 | |||||||||
Long-term debt, non-current portion | — | 79,985 | |||||||||
Deferred revenue, non-current portion | 25,647 | 28,726 | |||||||||
Operating lease liability, non-current portion | 444,115 | 394,724 | |||||||||
Other long-term liabilities | 87,867 | 82,485 | |||||||||
Total Liabilities | 1,413,083 | 1,315,539 | |||||||||
Commitments and contingencies (Note 12) | 0 | 0 | |||||||||
Stockholders’ Equity: | |||||||||||
Common stock, $0.0001 par value | 14 | 14 | |||||||||
Additional paid-in capital | 2,929,519 | 2,856,572 | |||||||||
Accumulated other comprehensive income (loss) | (41) | 41 | |||||||||
Accumulated deficit | (116,327) | (90,021) | |||||||||
Total stockholders’ equity | 2,813,165 | 2,766,606 | |||||||||
Total Liabilities and Stockholders’ Equity | $ | 4,226,248 | $ | 4,082,145 |
|
| Three Months Ended |
| |||||
|
| March 31, 2021 |
|
| March 31, 2020 |
| ||
Net Revenue: |
|
|
|
|
|
|
|
|
Platform |
| $ | 466,526 |
|
| $ | 232,557 |
|
Player |
|
| 107,657 |
|
|
| 88,209 |
|
Total net revenue |
|
| 574,183 |
|
|
| 320,766 |
|
Cost of Revenue: |
|
|
|
|
|
|
|
|
Platform |
|
| 154,590 |
|
|
| 101,936 |
|
Player |
|
| 92,822 |
|
|
| 77,729 |
|
Total cost of revenue |
|
| 247,412 |
|
|
| 179,665 |
|
Gross Profit: |
|
|
|
|
|
|
|
|
Platform |
|
| 311,936 |
|
|
| 130,621 |
|
Player |
|
| 14,835 |
|
|
| 10,480 |
|
Total gross profit |
|
| 326,771 |
|
|
| 141,101 |
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Research and development |
|
| 101,581 |
|
|
| 88,278 |
|
Sales and marketing |
|
| 88,873 |
|
|
| 68,248 |
|
General and administrative |
|
| 60,511 |
|
|
| 39,740 |
|
Total operating expenses |
|
| 250,965 |
|
|
| 196,266 |
|
Income (Loss) from Operations |
|
| 75,806 |
|
|
| (55,165 | ) |
Other Income (Expense), Net: |
|
|
|
|
|
|
|
|
Interest expense |
|
| (742 | ) |
|
| (863 | ) |
Other income (expense), net |
|
| 441 |
|
|
| 1,261 |
|
Total other income (expense), net |
|
| (301 | ) |
|
| 398 |
|
Income (Loss) Before Income Taxes |
|
| 75,505 |
|
|
| (54,767 | ) |
Income tax (benefit) expense |
|
| (791 | ) |
|
| (155 | ) |
Net Income (Loss) |
| $ | 76,296 |
|
| $ | (54,612 | ) |
|
|
|
|
|
|
|
|
|
Net income (loss) per share — basic |
| $ | 0.59 |
|
| $ | (0.45 | ) |
Net income (loss) per share — diluted |
| $ | 0.54 |
|
| $ | (0.45 | ) |
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding — basic |
|
| 129,674 |
|
|
| 120,180 |
|
Weighted-average common shares outstanding — diluted |
|
| 140,328 |
|
|
| 120,180 |
|
Three Months Ended | |||||||||||
March 31, 2022 | March 31, 2021 | ||||||||||
Net Revenue: | |||||||||||
Platform | $ | 646,904 | $ | 466,526 | |||||||
Player | 86,795 | 107,657 | |||||||||
Total net revenue | 733,699 | 574,183 | |||||||||
Cost of Revenue: | |||||||||||
Platform | 266,985 | 154,590 | |||||||||
Player | 101,907 | 92,822 | |||||||||
Total cost of revenue | 368,892 | 247,412 | |||||||||
Gross Profit (Loss): | |||||||||||
Platform | 379,919 | 311,936 | |||||||||
Player | (15,112) | 14,835 | |||||||||
Total gross profit | 364,807 | 326,771 | |||||||||
Operating Expenses: | |||||||||||
Research and development | 163,998 | 101,581 | |||||||||
Sales and marketing | 146,522 | 88,873 | |||||||||
General and administrative | 77,777 | 60,511 | |||||||||
Total operating expenses | 388,297 | 250,965 | |||||||||
Income (Loss) from Operations | (23,490) | 75,806 | |||||||||
Other Income (Expense), Net: | |||||||||||
Interest expense | (1,057) | (742) | |||||||||
Other income (expense), net | 409 | 441 | |||||||||
Total other income (expense), net | (648) | (301) | |||||||||
Income (Loss) Before Income Taxes | (24,138) | 75,505 | |||||||||
Income tax expense (benefit) | 2,168 | (791) | |||||||||
Net Income (Loss) | $ | (26,306) | $ | 76,296 | |||||||
Net income (loss) per share — basic | $ | (0.19) | $ | 0.59 | |||||||
Net income (loss) per share — diluted | $ | (0.19) | $ | 0.54 | |||||||
Weighted-average common shares outstanding — basic | 135,539 | 129,674 | |||||||||
Weighted-average common shares outstanding — diluted | 135,539 | 140,328 |
Three Months Ended | |||||||||||
March 31, 2022 | March 31, 2021 | ||||||||||
Net Income (Loss) | $ | (26,306) | $ | 76,296 | |||||||
Other comprehensive loss, net of tax: | |||||||||||
Foreign currency translation adjustment | (82) | — | |||||||||
Comprehensive Net Income (Loss) | $ | (26,388) | $ | 76,296 |
|
|
|
|
|
|
|
|
|
| Additional |
|
| Accumulated |
|
|
|
|
|
| Total |
| |||
|
| Common Stock |
|
| Paid-in |
|
| Other Comprehensive |
|
| Accumulated |
|
| Stockholders’ |
| |||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Income |
|
| Deficit |
|
| Equity |
| ||||||
Three Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance—December 31, 2020 |
|
| 128,004 |
|
|
| 13 |
|
|
| 1,660,379 |
|
|
| 29 |
|
|
| (332,406 | ) |
|
| 1,328,015 |
|
Vesting of early exercised stock options |
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
Issuance of common stock pursuant to equity incentive plans |
|
| 1,663 |
|
|
| — |
|
|
| 6,705 |
|
|
| — |
|
|
| — |
|
|
| 6,705 |
|
Issuance of common stock in connection with at-the-market offering, net of issuance costs of $10.4 million |
|
| 2,637 |
|
|
| — |
|
|
| 989,615 |
|
|
| — |
|
|
| — |
|
|
| 989,615 |
|
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| 40,677 |
|
|
| — |
|
|
| — |
|
|
| 40,677 |
|
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 76,296 |
|
|
| 76,296 |
|
Balance—March 31, 2021 |
|
| 132,304 |
|
| $ | 13 |
|
| $ | 2,697,380 |
|
| $ | 29 |
|
| $ | (256,110 | ) |
| $ | 2,441,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance—December 31, 2019 |
|
| 119,897 |
|
|
| 12 |
|
|
| 1,012,218 |
|
|
| 29 |
|
|
| (313,833 | ) |
|
| 698,426 |
|
Vesting of early exercised stock options |
|
| — |
|
|
| — |
|
|
| 17 |
|
|
| — |
|
|
| — |
|
|
| 17 |
|
Issuance of common stock pursuant to equity incentive plans |
|
| 760 |
|
|
| — |
|
|
| 2,743 |
|
|
| — |
|
|
| — |
|
|
| 2,743 |
|
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| 30,405 |
|
|
| — |
|
|
| — |
|
|
| 30,405 |
|
Adoption of ASU 2016-13 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,066 | ) |
|
| (1,066 | ) |
Net income (loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (54,612 | ) |
|
| (54,612 | ) |
Balance—March 31, 2020 |
|
| 120,657 |
|
| $ | 12 |
|
| $ | 1,045,383 |
|
| $ | 29 |
|
| $ | (369,511 | ) |
| $ | 675,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional | Accumulated | Total | |||||||||||||||||||||||||||||||||
Common Stock | Paid-in | Other Comprehensive | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||
Shares | Amount | Capital | Income (Loss) | Deficit | Equity | ||||||||||||||||||||||||||||||
Three Months Ended March 31, 2022 | |||||||||||||||||||||||||||||||||||
Balance—December 31, 2021 | 135,137 | $ | 14 | $ | 2,856,572 | $ | 41 | $ | (90,021) | $ | 2,766,606 | ||||||||||||||||||||||||
Issuance of common stock pursuant to equity incentive plans | 834 | — | 3,352 | — | — | 3,352 | |||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 69,595 | — | — | 69,595 | |||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | (82) | — | (82) | |||||||||||||||||||||||||||||
Net income (loss) | — | — | — | — | (26,306) | (26,306) | |||||||||||||||||||||||||||||
Balance—March 31, 2022 | 135,971 | $ | 14 | $ | 2,929,519 | $ | (41) | $ | (116,327) | $ | 2,813,165 | ||||||||||||||||||||||||
Additional | Accumulated | Total | |||||||||||||||||||||||||||||||||
Common Stock | Paid-in | Other Comprehensive | Accumulated | Stockholders’ | |||||||||||||||||||||||||||||||
Shares | Amount | Capital | Income | Deficit | Equity | ||||||||||||||||||||||||||||||
Three Months Ended March 31, 2021 | |||||||||||||||||||||||||||||||||||
Balance—December 31, 2020 | 128,004 | $ | 13 | $ | 1,660,379 | $ | 29 | $ | (332,406) | $ | 1,328,015 | ||||||||||||||||||||||||
Vesting of early exercised stock options | — | — | 4 | — | — | 4 | |||||||||||||||||||||||||||||
Issuance of common stock pursuant to equity incentive plans | 1,663 | — | 6,705 | — | — | 6,705 | |||||||||||||||||||||||||||||
Issuance of common stock in connection with at-the-market offering, net of issuance costs of $10,400 | 2,637 | — | 989,615 | — | — | 989,615 | |||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 40,677 | — | — | 40,677 | |||||||||||||||||||||||||||||
Net income (loss) | — | — | — | — | 76,296 | 76,296 | |||||||||||||||||||||||||||||
Balance—March 31, 2021 | 132,304 | $ | 13 | $ | 2,697,380 | $ | 29 | $ | (256,110) | $ | 2,441,312 |
3
|
| Three Months Ended |
| Three Months Ended | |||||||||||||||
|
| March 31, 2021 |
|
| March 31, 2020 |
| March 31, 2022 | March 31, 2021 | |||||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
| Cash flows from operating activities: | ||||||||||
Net Income (Loss) |
| $ | 76,296 |
|
| $ | (54,612 | ) | |||||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) | Net income (loss) | $ | (26,306) | $ | 76,296 | ||||||||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||||
Depreciation and amortization |
|
| 9,605 |
|
|
| 8,448 |
| Depreciation and amortization | 11,486 | 9,605 | ||||||||
Stock-based compensation expense |
|
| 40,537 |
|
|
| 30,405 |
| Stock-based compensation expense | 69,580 | 40,537 | ||||||||
Amortization of right-of-use assets |
|
| 6,458 |
|
|
| 9,213 |
| Amortization of right-of-use assets | 11,143 | 6,458 | ||||||||
Amortization of content assets |
|
| 9,818 |
|
|
| 6,123 |
| Amortization of content assets | 44,452 | 9,818 | ||||||||
Provision for doubtful accounts |
|
| (54 | ) |
|
| 3,788 |
| |||||||||||
Provision for (recoveries of) doubtful accounts | Provision for (recoveries of) doubtful accounts | 1,013 | (54) | ||||||||||||||||
Other items, net |
|
| 31 |
|
|
| (14 | ) | Other items, net | (264) | 31 | ||||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
| Changes in operating assets and liabilities: | ||||||||||
Accounts receivable |
|
| 32,608 |
|
|
| 32,458 |
| Accounts receivable | 75,675 | 32,608 | ||||||||
Inventories |
|
| 12,649 |
|
|
| 5,736 |
| Inventories | (22,587) | 12,649 | ||||||||
Prepaid expenses and other current assets |
|
| (19,001 | ) |
|
| (967 | ) | Prepaid expenses and other current assets | (15,751) | (19,001) | ||||||||
Other non-current assets |
|
| (60,484 | ) |
|
| 1,469 |
| Other non-current assets | (9,764) | (60,484) | ||||||||
Accounts payable |
|
| (18,857 | ) |
|
| (13,650 | ) | Accounts payable | 12,307 | (18,857) | ||||||||
Accrued liabilities |
|
| 29,052 |
|
|
| 4,797 |
| Accrued liabilities | (45,513) | 29,052 | ||||||||
Operating lease liabilities |
|
| (12,436 | ) |
|
| 13,560 |
| Operating lease liabilities | (9,193) | (12,436) | ||||||||
Other long-term liabilities |
|
| 548 |
|
|
| 1,166 |
| Other long-term liabilities | (49) | 548 | ||||||||
Deferred revenue |
|
| (10,971 | ) |
|
| (1,979 | ) | Deferred revenue | 5,569 | (10,971) | ||||||||
Net cash provided by operating activities |
|
| 95,799 |
|
|
| 45,941 |
| Net cash provided by operating activities | 101,798 | 95,799 | ||||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
| Cash flows from investing activities: | ||||||||||
Purchases of property and equipment |
|
| (3,717 | ) |
|
| (45,317 | ) | Purchases of property and equipment | (14,764) | (3,717) | ||||||||
Acquisitions of businesses, net of cash acquired |
|
| (102,804 | ) |
|
| — |
| |||||||||||
Proceeds from escrows associated with acquisition |
|
| — |
|
|
| 1,058 |
| |||||||||||
Acquisition of businesses, net of cash acquired | Acquisition of businesses, net of cash acquired | — | (102,804) | ||||||||||||||||
Net cash used in investing activities |
|
| (106,521 | ) |
|
| (44,259 | ) | Net cash used in investing activities | (14,764) | (106,521) | ||||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
| Cash flows from financing activities: | ||||||||||
Proceeds from equity issued under at-the-market offerings, net of offering costs |
|
| 989,615 |
|
|
| — |
| |||||||||||
Proceeds from borrowings, net of issuance costs |
|
| — |
|
|
| 69,325 |
| |||||||||||
Proceeds from equity issued under at-the-market offering, net of issuance costs | Proceeds from equity issued under at-the-market offering, net of issuance costs | — | 989,615 | ||||||||||||||||
Repayments of borrowings |
|
| (1,250 | ) |
|
| (1,250 | ) | Repayments of borrowings | (1,250) | (1,250) | ||||||||
Proceeds from equity issued under incentive plans |
|
| 6,705 |
|
|
| 2,743 |
| Proceeds from equity issued under incentive plans | 3,352 | 6,705 | ||||||||
Net cash provided by financing activities |
|
| 995,070 |
|
|
| 70,818 |
| Net cash provided by financing activities | 2,102 | 995,070 | ||||||||
Net increase in cash, cash equivalents and restricted cash |
|
| 984,348 |
|
|
| 72,500 |
| Net increase in cash, cash equivalents and restricted cash | 89,136 | 984,348 | ||||||||
Cash, cash equivalents and restricted cash —Beginning of period |
|
| 1,093,249 |
|
|
| 517,333 |
| |||||||||||
Cash, cash equivalents and restricted cash —End of period |
| $ | 2,077,597 |
|
| $ | 589,833 |
| |||||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | Effect of exchange rate changes on cash, cash equivalents and restricted cash | (82) | — | ||||||||||||||||
Cash, cash equivalents and restricted cash —beginning of period | Cash, cash equivalents and restricted cash —beginning of period | 2,147,670 | 1,093,249 | ||||||||||||||||
Cash, cash equivalents and restricted cash —end of period | Cash, cash equivalents and restricted cash —end of period | $ | 2,236,724 | $ | 2,077,597 | ||||||||||||||
Cash, cash equivalents and restricted cash at end of period: |
|
|
|
|
|
|
|
| Cash, cash equivalents and restricted cash at end of period: | ||||||||||
Cash and cash equivalents |
|
| 2,077,514 |
|
|
| 588,294 |
| Cash and cash equivalents | 2,235,092 | 2,077,514 | ||||||||
Restricted cash |
|
| 83 |
|
|
| 1,539 |
| |||||||||||
Cash, cash equivalents and restricted cash —End of period |
| $ | 2,077,597 |
|
| $ | 589,833 |
| |||||||||||
Restricted cash, current | Restricted cash, current | — | 83 | ||||||||||||||||
Restricted cash, non-current | Restricted cash, non-current | 1,632 | — | ||||||||||||||||
Cash, cash equivalents and restricted cash —end of period | Cash, cash equivalents and restricted cash —end of period | $ | 2,236,724 | $ | 2,077,597 |
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 647 |
|
| $ | 1,067 |
|
Cash paid for income taxes |
| $ | 277 |
|
| $ | 238 |
|
Supplemental disclosures of noncash investing and financing activities: |
|
|
|
|
|
|
|
|
Unpaid portion of property and equipment purchases |
| $ | 2,860 |
|
| $ | 14,148 |
|
Unpaid portion of acquisition related expenses |
| $ | 1,595 |
|
| $ | — |
|
Unpaid portion of purchased intangibles |
| $ | — |
|
| $ | 400 |
|
Unpaid portion of at-the-market offering costs |
| $ | 105 |
|
| $ | — |
|
Three Months Ended | |||||||||||
March 31, 2022 | March 31, 2021 | ||||||||||
Supplemental disclosures of cash flow information: | |||||||||||
Cash paid for interest | $ | 656 | $ | 647 | |||||||
Cash paid for income taxes | $ | 511 | $ | 277 | |||||||
Supplemental disclosures of non-cash investing and financing activities: | |||||||||||
Unpaid portion of property and equipment purchases | $ | 3,413 | $ | 2,860 | |||||||
Unpaid portion of acquisition-related expenses | $ | — | $ | 1,595 | |||||||
Unpaid portion of at-the-market issuance costs | $ | — | $ | 105 |
4
Reclassification of Prior Year Presentation
Certain prior period amounts within cash flow from operations in the statement of cash flows, have been reclassified to conform to current period presentation. These reclassifications had no effect on net cash provided by operating activities for any period reported.
5
balance as of December 31, 2021, respectively.
|
| Three Months Ended |
| Three Months Ended | |||||||||||||||||||||||||||
|
| March 31, 2021 |
|
| March 31, 2020 |
| March 31, 2022 | March 31, 2021 | |||||||||||||||||||||||
Beginning balance |
| $ | (5,912 | ) |
| $ | (6,550 | ) | Beginning balance | $ | 6,015 | $ | 5,912 | ||||||||||||||||||
Charged to revenue |
|
| (2,526 | ) |
|
| (2,727 | ) | |||||||||||||||||||||||
Utilization of sales return reserve |
|
| 4,670 |
|
|
| 4,609 |
| |||||||||||||||||||||||
Add: Charged to revenue | Add: Charged to revenue | 3,521 | 2,526 | ||||||||||||||||||||||||||||
Less: Utilization of sales return reserve | Less: Utilization of sales return reserve | (5,437) | (4,670) | ||||||||||||||||||||||||||||
Ending balance |
| $ | (3,768 | ) |
| $ | (4,668 | ) | Ending balance | $ | 4,099 | $ | 3,768 |
|
| Three Months Ended |
| Three Months Ended | |||||||||||||||||||||||||||
|
| March 31, 2021 |
|
| March 31, 2020 |
| March 31, 2022 | March 31, 2021 | |||||||||||||||||||||||
Beginning balance |
| $ | (30,838 | ) |
| $ | (19,476 | ) | Beginning balance | $ | 48,411 | $ | 30,838 | ||||||||||||||||||
Charged to revenue |
|
| (12,618 | ) |
|
| (9,409 | ) | |||||||||||||||||||||||
Utilization of sales incentive reserve |
|
| 23,320 |
|
|
| 19,612 |
| |||||||||||||||||||||||
Add: Charged to revenue | Add: Charged to revenue | 17,611 | 12,618 | ||||||||||||||||||||||||||||
Less: Utilization of sales incentive reserve | Less: Utilization of sales incentive reserve | (38,134) | (23,320) | ||||||||||||||||||||||||||||
Ending balance |
| $ | (20,136 | ) |
| $ | (9,273 | ) | Ending balance | $ | 27,888 | $ | 20,136 |
|
| Three Months Ended |
| |||||
|
| March 31, 2021 |
|
| March 31, 2020 |
| ||
Balance, beginning of period |
| $ | (4,181 | ) |
| $ | (1,140 | ) |
Impact of adoption of ASU 2016-13 |
|
| — |
|
|
| (1,066 | ) |
Adjusted balance, beginning of period |
|
| (4,181 | ) |
|
| (2,206 | ) |
Provision for doubtful accounts |
|
| 54 |
|
|
| (3,788 | ) |
Adjustments for recovery and write-off |
|
| — |
|
|
| 1,035 |
|
Balance, end of period |
| $ | (4,127 | ) |
| $ | (4,959 | ) |
Three Months Ended | |||||||||||||||||||||||
March 31, 2022 | March 31, 2021 | ||||||||||||||||||||||
Beginning balance | $ | 2,158 | $ | 4,181 | |||||||||||||||||||
Provision for (recoveries of) doubtful accounts | 1,013 | (54) | |||||||||||||||||||||
Adjustments for recovery and write-off | — | — | |||||||||||||||||||||
Ending balance | $ | 3,171 | $ | 4,127 |
2021.
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04,
6
that reference London Interbank Offered Rate (“LIBOR”) that is expected to be discontinued, subject to meeting certain criteria. The guidance is effective as of March 12, 2020 through December 31, 2022. The Company made a policy election in the second quarter of 2020 to elect a different reference rate for the Credit Agreement (as defined below) when LIBOR is discontinued.
|
| As of |
| As of | |||||||||||||||
|
| March 31, 2021 |
|
| December 31, 2020 |
| March 31, 2022 | December 31, 2021 | |||||||||||
Accounts receivable, net |
| $ | 496,173 |
|
| $ | 523,852 |
| Accounts receivable, net | $ | 675,705 | $ | 752,393 | ||||||
Contract assets (included in Prepaid expenses and other current assets) |
|
| 28,684 |
|
|
| 7,431 |
| Contract assets (included in Prepaid expenses and other current assets) | 61,681 | 46,952 | ||||||||
|
|
|
|
|
|
|
|
| |||||||||||
Deferred revenue, current portion |
|
| 48,121 |
|
|
| 55,465 |
| Deferred revenue, current portion | $ | 54,408 | $ | 45,760 | ||||||
Deferred revenue, non-current portion |
|
| 22,618 |
|
|
| 21,283 |
| Deferred revenue, non-current portion | 25,647 | 28,726 | ||||||||
Total deferred revenue |
| $ | 70,739 |
|
| $ | 76,748 |
| Total deferred revenue | $ | 80,055 | $ | 74,486 |
Contract liabilities are included in deferredperiod.
Fair Values | |||||
Assets acquired | |||||
Cash and cash equivalents | $ | 3,057 | |||
Prepaid expenses and other current assets | 85 | ||||
Property and equipment, net | 584 | ||||
Intangible assets: | |||||
Developed technology | 11,000 | ||||
IPR&D technology | 7,500 | ||||
Goodwill | 36,790 | ||||
Operating lease right-of-use assets | 1,235 | ||||
Other non-current assets | 1,905 | ||||
Total assets acquired | 62,156 | ||||
Liabilities assumed | |||||
Accounts payable and accrued liabilities | (1,168) | ||||
Operating lease liabilities, non-current portion | (830) | ||||
Other long-term liabilities | (6,767) | ||||
Total liabilities assumed | (8,765) | ||||
Total purchase consideration | $ | 53,391 |
7
4.
along with their estimated useful lives, is as follows (in thousands, except years):
Estimated Fair Value | Estimated Weighted-Average Useful Lives (in years) | ||||||||||
Developed technology | $ | 11,000 | 5.9 | ||||||||
IPR&D technology | 7,500 | 0 | |||||||||
Estimated fair value of acquired intangible assets | $ | 18,500 | 5.9 |
The Company is still in the process of finalizing the fair value of the assets and liabilities acquired. The purchase price allocation below is preliminary in nature. The estimates and assumptions regarding the fair value of certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, income taxes, and goodwill are subject to change as the Company obtains additional informationoperations during the measurement period, which usually lasts for up to one year from the acquisition date.
ended December 31, 2021.
Assets acquired |
| Fair Values |
| |
Cash and cash equivalents |
| $ | 7 |
|
Accounts receivable |
|
| 4,875 |
|
Prepaid and other current assets |
|
| 7,310 |
|
Property and equipment, net |
|
| 307 |
|
Intangible assets: |
|
|
|
|
Tradename |
|
| 20,000 |
|
Customer relationships |
|
| 700 |
|
Goodwill |
|
| 47,626 |
|
Operating lease right-of-use assets |
|
| 5,498 |
|
Other long-term assets |
|
| 23,487 |
|
Total assets acquired |
|
| 109,810 |
|
Liabilities assumed |
|
|
|
|
Accounts payable and accrued liabilities |
|
| (2,747 | ) |
Deferred revenue, current |
|
| (4,146 | ) |
Operating lease liabilities |
|
| (4,262 | ) |
Deferred revenue, non-current |
|
| (816 | ) |
Other long-term liabilities |
|
| (28 | ) |
Total liabilities assumed |
|
| (11,999 | ) |
Total purchase consideration |
| $ | 97,811 |
|
Fair Values | |||||
Assets acquired | |||||
Cash and cash equivalents | $ | 7 | |||
Accounts receivable | 5,830 | ||||
Prepaid expenses and other current assets | 7,310 | ||||
Property and equipment, net | 307 | ||||
Intangible assets: | |||||
Tradename | 20,000 | ||||
Customer relationships | 700 | ||||
Goodwill | 46,671 | ||||
Operating lease right-of-use assets | 5,498 | ||||
Other non-current assets | 23,487 | ||||
Total assets acquired | 109,810 | ||||
Liabilities assumed | |||||
Accounts payable and accrued liabilities | (2,747) | ||||
Deferred revenue, current portion | (4,146) | ||||
Operating lease liabilities, non-current portion | (4,262) | ||||
Deferred revenue, non-current portion | (816) | ||||
Other long-term liabilities | (28) | ||||
Total liabilities assumed | (11,999) | ||||
Total purchase consideration | $ | 97,811 |
8
|
| Estimated Fair Value |
|
| Estimated Useful Lives (in years) | Estimated Fair Value | Estimated Weighted-Average Useful Lives (in years) | ||||||||||
Tradename |
| $ | 20,000 |
|
| 10 | Tradename | $ | 20,000 | 10.0 | |||||||
Customer relationships |
|
| 700 |
|
| 4 | Customer relationships | 700 | 4.0 | ||||||||
Estimated fair value of acquired intangible assets |
| $ | 20,700 |
|
|
| Estimated fair value of acquired intangible assets | $ | 20,700 | 9.8 |
The revenue, cost of revenue and gross profit recorded by the Company in its condensed consolidated statement of operations from the acquisition date of March 19, 2021 to March 31, 2021 are not material.
The following table reflects the carrying value of goodwill (in thousands):
|
| Carrying Value |
| |
Balance as of December 31, 2020 |
| $ | 73,058 |
|
Additions: |
|
|
|
|
This Old House acquisition |
|
| 47,626 |
|
Other immaterial acquisitions |
|
| 5,000 |
|
Balance as of March 31, 2021 |
| $ | 125,684 |
|
Intangible Assets
|
| As of March 31, 2021 |
| As of March 31, 2022 | |||||||||||||||||||||||||||||||||||
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Weighted-Average Useful Lives (in years) |
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted-Average Useful Lives (in years) | |||||||||||||||||||||||
Developed technology |
| $ | 62,367 |
|
| $ | (16,082 | ) |
| $ | 46,285 |
|
|
| 5.9 |
| Developed technology | $ | 73,367 | $ | (28,362) | $ | 45,005 | 5.9 | |||||||||||||||
Customer relationships |
|
| 14,100 |
|
|
| (4,752 | ) |
|
| 9,348 |
|
|
| 4.0 |
| Customer relationships | 14,100 | (8,277) | 5,823 | 4.0 | ||||||||||||||||||
Tradename |
|
| 20,400 |
|
|
| (466 | ) |
|
| 19,934 |
|
|
| 9.8 |
| Tradename | 20,400 | (2,466) | 17,934 | 9.8 | ||||||||||||||||||
Patents |
|
| 4,076 |
|
|
| (388 | ) |
|
| 3,688 |
|
|
| 14.0 |
| Patents | 4,076 | (679) | 3,397 | 14.0 | ||||||||||||||||||
Intangible assets |
| $ | 100,943 |
|
| $ | (21,688 | ) |
| $ | 79,255 |
|
|
|
|
| |||||||||||||||||||||||
Intangible assets subject to amortization | Intangible assets subject to amortization | 111,943 | (39,784) | 72,159 | 6.7 | ||||||||||||||||||||||||||||||||||
IPR&D technology | IPR&D technology | 7,500 | — | 7,500 | |||||||||||||||||||||||||||||||||||
Total Intangible assets | Total Intangible assets | $ | 119,443 | $ | (39,784) | $ | 79,659 |
|
| As of December 31, 2020 |
| As of December 31, 2021 | |||||||||||||||||||||||||||||||||||
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Weighted-Average Useful Lives (in years) |
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted-Average Useful Lives (in years) | |||||||||||||||||||||||
Developed technology |
| $ | 62,367 |
|
| $ | (13,439 | ) |
| $ | 48,928 |
|
|
| 5.9 |
| Developed technology | $ | 73,367 | $ | (25,350) | $ | 48,017 | 5.9 | |||||||||||||||
Customer relationships |
|
| 13,400 |
|
|
| (3,908 | ) |
|
| 9,492 |
|
|
| 4.0 |
| Customer relationships | 14,100 | (7,395) | 6,705 | 4.0 | ||||||||||||||||||
Tradename |
|
| 400 |
|
|
| (400 | ) |
|
| — |
|
|
| 0.5 |
| Tradename | 20,400 | (1,966) | 18,434 | 9.8 | ||||||||||||||||||
Patents |
|
| 4,076 |
|
|
| (315 | ) |
|
| 3,761 |
|
|
| 14.0 |
| Patents | 4,076 | (606) | 3,470 | 14.0 | ||||||||||||||||||
Intangible assets |
| $ | 80,243 |
|
| $ | (18,062 | ) |
| $ | 62,181 |
|
|
|
|
| |||||||||||||||||||||||
Intangible assets subject to amortization | Intangible assets subject to amortization | 111,943 | (35,317) | 76,626 | 6.7 | ||||||||||||||||||||||||||||||||||
IPR&D technology | IPR&D technology | 7,500 | — | 7,500 | |||||||||||||||||||||||||||||||||||
Total Intangible assets | Total Intangible assets | $ | 119,443 | $ | (35,317) | $ | 84,126 |
9
The
Year Ending December 31, |
|
|
|
| Year Ending December 31, | ||||
2021 (remaining 9 months) |
| $ | 12,153 |
| |||||
2022 |
|
| 15,896 |
| |||||
2022 (remaining 9 months) | 2022 (remaining 9 months) | $ | 13,278 | ||||||
2023 |
|
| 15,338 |
| 2023 | 17,066 | |||
2024 |
|
| 12,546 |
| 2024 | 14,275 | |||
2025 |
|
| 10,794 |
| 2025 | 12,571 | |||
2026 | 2026 | 4,074 | |||||||
Thereafter |
|
| 12,528 |
| Thereafter | 10,895 | |||
Total |
| $ | 79,255 |
| Total | $ | 72,159 |
BALANCE SHEET COMPONENTS
|
| As of |
| ||||||||||||||||
|
| March 31, 2021 |
|
| December 31, 2020 |
| As of | ||||||||||||
Gross accounts receivable |
| $ | 524,429 |
|
| $ | 565,088 |
| |||||||||||
March 31, 2022 | December 31, 2021 | ||||||||||||||||||
Accounts receivable, gross | Accounts receivable, gross | $ | 711,043 | $ | 809,220 | ||||||||||||||
Less: Allowances | Less: Allowances | ||||||||||||||||||
Allowance for sales returns |
|
| (3,768 | ) |
|
| (5,912 | ) | Allowance for sales returns | 4,099 | 6,015 | ||||||||
Allowance for sales incentives |
|
| (20,136 | ) |
|
| (30,838 | ) | Allowance for sales incentives | 27,888 | 48,411 | ||||||||
Allowance for doubtful accounts |
|
| (4,127 | ) |
|
| (4,181 | ) | Allowance for doubtful accounts | 3,171 | 2,158 | ||||||||
Other allowances |
|
| (225 | ) |
|
| (305 | ) | Other allowances | 180 | 243 | ||||||||
Total allowances |
|
| (28,256 | ) |
|
| (41,236 | ) | Total allowances | 35,338 | 56,827 | ||||||||
Total Accounts Receivable, net of allowances |
| $ | 496,173 |
|
| $ | 523,852 |
| |||||||||||
Accounts receivable, net | Accounts receivable, net | $ | 675,705 | $ | 752,393 |
|
| As of |
| |||||
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Computers and equipment |
| $ | 32,279 |
|
| $ | 30,859 |
|
Leasehold improvements |
|
| 147,790 |
|
|
| 144,013 |
|
Website and internal-use software |
|
| 7,319 |
|
|
| 6,744 |
|
Office equipment and furniture |
|
| 19,671 |
|
|
| 19,661 |
|
Total property and equipment |
|
| 207,059 |
|
|
| 201,277 |
|
Accumulated depreciation and amortization |
|
| (52,058 | ) |
|
| (46,080 | ) |
Property and Equipment, net |
| $ | 155,001 |
|
| $ | 155,197 |
|
As of | |||||||||||
March 31, 2022 | December 31, 2021 | ||||||||||
Computers and equipment | $ | 39,913 | $ | 38,473 | |||||||
Leasehold improvements | 194,788 | 182,229 | |||||||||
Internal-use software | 7,274 | 7,274 | |||||||||
Office equipment and furniture | 22,550 | 20,829 | |||||||||
Property and equipment, gross | 264,525 | 248,805 | |||||||||
Less: Accumulated depreciation and amortization | (78,217) | (71,238) | |||||||||
Property and equipment, net | $ | 186,308 | $ | 177,567 |
|
| As of |
| As of | |||||||||||||||
|
| March 31, 2021 |
|
| December 31, 2020 |
| March 31, 2022 | December 31, 2021 | |||||||||||
Payments due to content publishers |
|
| 144,138 |
|
|
| 106,576 |
| Payments due to content publishers | $ | 177,724 | $ | 165,894 | ||||||
Accrued cost of revenue |
|
| 102,285 |
|
|
| 98,285 |
| Accrued cost of revenue | 106,866 | 142,014 | ||||||||
Marketing, retail and merchandising costs |
|
| 44,023 |
|
|
| 43,645 |
| |||||||||||
Marketing, retail, and merchandising costs | Marketing, retail, and merchandising costs | 67,388 | 47,428 | ||||||||||||||||
Operating lease liability, current |
|
| 32,715 |
|
|
| 35,647 |
| Operating lease liability, current | 43,273 | 37,116 | ||||||||
Content liability, current |
|
| 89,816 |
|
|
| 6,165 |
| Content liability, current | 78,224 | 70,462 | ||||||||
Other accrued expenses |
|
| 64,425 |
|
|
| 57,350 |
| Other accrued expenses | 101,373 | 86,141 | ||||||||
Total Accrued Liabilities |
| $ | 477,402 |
|
| $ | 347,668 |
| |||||||||||
Total accrued liabilities | Total accrued liabilities | $ | 574,848 | $ | 549,055 |
|
| As of |
| As of | |||||||||||||||
|
| March 31, 2021 |
|
| December 31, 2020 |
| March 31, 2022 | December 31, 2021 | |||||||||||
Platform, current |
| $ | 21,516 |
|
| $ | 27,587 |
| Platform, current | $ | 33,181 | $ | 22,240 | ||||||
Player, current |
|
| 26,605 |
|
|
| 27,878 |
| Player, current | 21,227 | 23,520 | ||||||||
Total deferred revenue, current |
|
| 48,121 |
|
|
| 55,465 |
| Total deferred revenue, current | 54,408 | 45,760 | ||||||||
Platform, non-current |
|
| 10,906 |
|
|
| 9,909 |
| Platform, non-current | 5,214 | 9,324 | ||||||||
Player, non-current |
|
| 11,712 |
|
|
| 11,374 |
| Player, non-current | 20,433 | 19,402 | ||||||||
Total deferred revenue, non-current |
|
| 22,618 |
|
|
| 21,283 |
| Total deferred revenue, non-current | 25,647 | 28,726 | ||||||||
Total Deferred Revenue |
| $ | 70,739 |
|
| $ | 76,748 |
| |||||||||||
Total deferred revenue | Total deferred revenue | $ | 80,055 | $ | 74,486 |
As of | |||||||||||
March 31, 2022 | December 31, 2021 | ||||||||||
Content liability, non-current | $ | 56,432 | $ | 51,211 | |||||||
Other long-term liabilities | 31,435 | 31,274 | |||||||||
Total other long-term liabilities | $ | 87,867 | $ | 82,485 |
As of March 31, 2021 and December 31, 2020, content assets, that met the capitalization criteria were $104.6 million and $7.9 million, respectively, and arenet recorded in Other non-current assets. On January 8, 2021, the Company entered into an agreement with the mobile-first video distribution service known as Quibi to acquire certain content rights. The transaction was accounted for as an asset acquisition. As discussed in Note 4, the Company also acquired content assets as part of Other non-current assets consisted of the This Old House acquisition. During the three months ended March 31, 2021, the increasefollowing (in thousands):
As of | |||||||||||
March 31, 2022 | December 31, 2021 | ||||||||||
Licensed content, net | $ | 228,978 | $ | 199,290 | |||||||
Produced content: | |||||||||||
Released, less amortization | 21,013 | 20,030 | |||||||||
Completed, not released | 1,235 | 881 | |||||||||
In production | 10,455 | 3,512 | |||||||||
Total produced content, net | 32,703 | 24,423 | |||||||||
Total content assets, net | $ | 261,681 | $ | 223,713 |
The Company records amortization expense for licensed content based on the pattern of monetization of such content. Amortization expense associated with licensed content assets was $9.8 million and $6.1 million for the three months ended March 31, 2021 and 2020, respectively and is included in Cost of revenue, platform in the condensed consolidated statements of operations.
Licensed content assets are primarily monetized together as a unit, referred to as a film group. The film groupoperations and is evaluated for impairment whenever an event occurs or circumstances change indicatingreflected in the fair value is less than the carrying value. The Company reviews various qualitative factors and indicators to assess whether the group asset is impaired.
table below (in thousands):
Three Months Ended | |||||||||||||||||||||||
March 31, 2022 | March 31, 2021 | ||||||||||||||||||||||
Licensed content | $ | 41,625 | $ | 9,616 | |||||||||||||||||||
Produced content | 2,827 | 202 | |||||||||||||||||||||
Total amortization costs | $ | 44,452 | $ | 9,818 |
DISCLOSURE
|
| As of March 31, 2021 |
|
| As of December 31, 2020 |
| As of March 31, 2022 | As of December 31, 2021 | |||||||||||||||||||||||||||||||
|
| Fair Value |
|
| Level 1 |
|
| Fair Value |
|
| Level 1 |
| Fair Value | Level 1 | Fair Value | Level 1 | |||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Assets: | ||||||||||||||||||||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents: | ||||||||||||||||||||||
Cash |
| $ | 2,005,720 |
|
| $ | 2,005,720 |
|
| $ | 1,021,022 |
|
| $ | 1,021,022 |
| Cash | $ | 1,634,957 | $ | 1,634,957 | $ | 1,130,172 | $ | 1,130,172 | ||||||||||||||
Money market funds |
|
| 71,794 |
|
|
| 71,794 |
|
|
| 71,793 |
|
|
| 71,793 |
| Money market funds | 600,135 | 600,135 | 1,015,871 | 1,015,871 | ||||||||||||||||||
Restricted cash |
|
| 83 |
|
|
| 83 |
|
|
| 434 |
|
|
| 434 |
| |||||||||||||||||||||||
Restricted cash, non-current | Restricted cash, non-current | 1,632 | 1,632 | 1,627 | 1,627 | ||||||||||||||||||||||||||||||||||
Total assets measured and recorded at fair value |
| $ | 2,077,597 |
|
| $ | 2,077,597 |
|
| $ | 1,093,249 |
|
| $ | 1,093,249 |
| Total assets measured and recorded at fair value | $ | 2,236,724 | $ | 2,236,724 | $ | 2,147,670 | $ | 2,147,670 |
11
2021.
2021.
|
| Three Months Ended |
| Three Months Ended | |||||||||||||||||||||||||||
|
| March 31, 2021 |
|
| March 31, 2020 |
| March 31, 2022 | March 31, 2021 | |||||||||||||||||||||||
Operating lease cost (1) |
| $ | 10,266 |
|
| $ | 12,217 |
| Operating lease cost (1) | $ | 15,357 | $ | 10,266 | ||||||||||||||||||
Variable lease cost |
|
| 2,952 |
|
|
| 2,198 |
| Variable lease cost | 4,225 | 2,952 | ||||||||||||||||||||
Net operating lease cost |
| $ | 13,218 |
|
| $ | 14,415 |
| |||||||||||||||||||||||
Total operating lease cost | Total operating lease cost | $ | 19,582 | $ | 13,218 |
|
| Three Months Ended |
| Three Months Ended | |||||||||||||||||||||||||||
|
| March 31, 2021 |
|
| March 31, 2020 |
| March 31, 2022 | March 31, 2021 | |||||||||||||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||||||||
Operating cash outflows from operating leases |
| $ | 16,224 |
|
| $ | 9,451 |
| Operating cash outflows from operating leases | $ | 13,658 | $ | 16,224 | ||||||||||||||||||
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
|
| Right-of-use assets obtained in exchange for lease obligations: | ||||||||||||||||||||||
Operating leases |
| $ | 5,498 |
|
| $ | (795 | ) | Operating leases | $ | 66,690 | $ | 5,498 |
Supplemental balance sheet information related to leases is as follows (in thousands, except lease term and discount As of March 31, 2021 December 31, 2020 Operating lease right-of-use assets $ 265,237 $ 266,197 Included in accounts payable and accrued liabilities: Operating lease liability, current 32,715 35,647 Operating lease liability, non-current 303,159 307,936 Total operating lease liability $ 335,874 $ 343,583 Weighted Average Remaining Lease Term: Operating leases (in years) 8.81 9.05 Weighted Average Discount Rate: Operating leases 4.59 % 4.60 % Future lease payments under operating leases as of March 31, Year Ending December 31, Operating Leases 2021 (remaining 9 months) $ 35,113 2022 48,126 2023 48,287 2024 47,238 2025 46,910 Thereafter 204,271 Total future lease payments 429,945 Less: imputed interest (78,085 ) Less: expected tenant improvement allowance (15,986 ) Total $ 335,874 As of March 31, 2021 December 31, 2020 Amount Effective Interest Rate Amount Effective Interest Rate Term Loan A Facility $ 93,750 2.02 % $ 95,000 2.03 % Less: Debt issuance costs (227 ) (258 ) Net carrying amount of debt $ 93,523 $ 94,742 Agreement. repaid in full by February 2023. 2021. March 2021, the Company sold approximately 2.6 million shares of Class A common stock at an average selling price of $379.26 per share, for aggregate gross proceeds of Common stock awards granted under equity incentive plans Common stock awards available for issuance under the 2017 Equity Incentive Plan Total reserved shares of common stock Number of Shares Weighted Average Grant Date Fair Value Per Share Balance, December 31, 2020 4,355 $ 92.91 Awarded 97 384.11 Released (387 ) 71.77 Forfeited (71 ) 112.86 Balance, March 31, 2021 – outstanding 3,994 $ 101.66 Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Weighted Average Grant Date Fair Value Per Share Aggregate Intrinsic Value Balance, December 31, 2020 8,733 $ 26.19 5.7 — Granted 10 413.11 — $ 154.43 Exercised (1,276 ) 5.25 — — Forfeited and expired (4 ) 7.57 — — Balance, March 31, 2021 - outstanding 7,463 $ 30.31 5.8 — $ 2,206,030 Options exercisable at March 31, 2021 5,311 $ 9.47 4.9 — $ 1,680,001 per share data): Three Months Ended March 31, 2021 March 31, 2020 Cost of platform revenue $ 198 $ 211 Cost of player revenue 415 338 Research and development 16,554 13,255 Sales and marketing 13,363 10,057 General and administrative 10,007 6,544 Total stock-based compensation $ 40,537 $ 30,405 12. COMMITMENTS AND CONTINGENCIES included in the obligations above. material. was primarily attributable to the Company's non-U.S. operations. future. Three Months Ended March 31, 2021 March 31, 2020 Numerator: Net income (loss) $ 76,296 $ (54,612 ) Denominator: Weighted-average common shares outstanding — basic 129,674 120,180 Net income (loss) per share — basic $ 0.59 $ (0.45 ) Weighted-average common shares outstanding — basic 129,674 120,180 Common stock equivalents 10,654 — Weighted-average common shares outstanding — diluted 140,328 120,180 Net income (loss) per share — diluted $ 0.54 $ (0.45 ) Three Months Ended March 31, 2021 March 31, 2020 Restricted stock units and stock options 74 15,227 Unvested shares of common stock issued upon early exercise of stock options — 19 Total 74 15,246 Three Months Ended March 31, 2021 March 31, 2020 Platform segment revenue Customer H 14 % 13 % Player segment revenue Customer A 10 % 13 % Customer B 23 % 13 % Customer C 39 % 47 % Revenue in international marketswas less than 10% in each of the periods presented. Substantially all Company assets were held in the United States and were attributable to the operations in the United States as of March 31, 2021. Operations SEC. through 2022. operations may persist for a longer period, even after the COVID-19 pandemic has subsided. respectively, reflecting an increase of 12%. respectively, reflecting an increase of 14%. Quarter Published SHs Revised SHs SHs % Delta Published YoY Revised YoY 2017 Q1 3.3B 3.2B -0.5% 63.4% NA 2017 Q2 3.5B 3.5B -0.4% 60.0% NA 2017 Q3 3.8B 3.8B -0.4% 57.8% NA 2017 Q4 4.3B 4.3B -0.2% 55.3% NA 2018 Q1 5.1B 5.1B -0.5% 56.0% 56.1% 2018 Q2 5.5B 5.4B -0.5% 57.2% 57.0% 2018 Q3 6.2B 6.1B -0.7% 62.7% 62.1% 2018 Q4 7.3B 7.1B -2.2% 68.6% 65.2% 2019 Q1 8.9B 8.4B -5.4% 74.1% 65.5% 2019 Q2 9.4B 8.8B -6.0% 72.1% 62.6% 2019 Q3 10.3B 9.6B -6.5% 67.6% 57.9% 2019 Q4 11.7B 10.9B -6.3% 60.2% 53.7% 2020 Q1 13.2B 12.3B -7.0% 49.3% 46.8% Year Published SHs Revised SHs SHs % Delta Published YoY Revised YoY 2017 14.8B 14.8B -0.4% 58.8% NA 2018 24.0B 23.7B -1.1% 61.7% 60.5% 2019 40.3B 37.8B -6.1% 67.8% 59.3% Average Revenue per User 34%. Europe. internationally. Three Months Ended March 31, 2021 March 31, 2020 Net Revenue: Platform 81 % 73 % Player 19 % 27 % Total net revenue 100 % 100 % Cost of Revenue: Platform 27 % 32 % Player 16 % 24 % Total cost of revenue 43 % 56 % Gross Profit: Platform 54 % 41 % Player 3 % 3 % Total gross profit 57 % 44 % Operating Expenses: Research and development 18 % 28 % Sales and marketing 15 % 21 % General and administrative 11 % 12 % Total operating expenses 44 % 61 % Income (Loss) from Operations 13 % (17 )% Other Income, Net: Interest expense — % — % Other income, net — % — % Total other income, net — % — % Income (Loss) before income taxes 13 % (17 )% Income tax (benefit) expense — % — % Net income (loss) 13 % (17 )% 2021 Three Months Ended March 31, 2021 March 31, 2020 Change $ Change % (in thousands, except percentages) Platform $ 466,526 $ 232,557 $ 233,969 101 % Player 107,657 88,209 19,448 22 % Total Net Revenue $ 574,183 $ 320,766 $ 253,417 79 % Three Months Ended March 31, 2021 March 31, 2020 Change $ Change % (in thousands, except percentages) Cost of revenue: Platform $ 154,590 $ 101,936 $ 52,654 52 % Player 92,822 77,729 15,093 19 % Total Cost of Revenue $ 247,412 $ 179,665 $ 67,747 38 % Gross profit: Platform $ 311,936 $ 130,621 $ 181,315 139 % Player 14,835 10,480 4,355 42 % Total Gross Profit $ 326,771 $ 141,101 $ 185,670 132 % Three Months Ended March 31, 2021 March 31, 2020 Change $ Change % (in thousands, except percentages) Research and development $ 101,581 $ 88,278 $ 13,303 15 % Sales and marketing 88,873 68,248 20,625 30 % General and administrative 60,511 39,740 20,771 52 % Total Operating Expenses $ 250,965 $ 196,266 $ 54,699 28 % $3.9 million. marketing management, marketing, and business analytics to support efforts to grow our business. higher headcount. administrative Three Months Ended March 31, 2021 March 31, 2020 Change $ Change % (in thousands, except percentages) Interest expense $ (742 ) $ (863 ) $ 121 (14 )% Other income (expense), net 441 1,261 (820 ) (65 )% Total Other Income (Expense), Net $ (301 ) $ 398 $ (699 ) (176 )% Three Months Ended March 31, 2021 March 31, 2020 Change $ Change % (in thousands, except percentages) Income tax (benefit) expense $ (791 ) $ (155 ) $ (636 ) 410 % benefits. contributed to disruption and volatility in local economies and in capital and credit markets, which could adversely affect our liquidity and capital resources in the future. Three Months Ended March 31, 2021 March 31, 2020 Consolidated Statements of Cash Flows Data: Cash flows provided by operating activities $ 95,799 $ 45,941 Cash flows used in investing activities (106,521 ) (44,259 ) Cash flows provided by financing activities 995,070 70,818 and equipment and intangible assets, Investing Activities Financing Activities Known Contractual Obligations Payments Due by Period Total Less Than 1 Year 1 – 3 Years 3 – 5 Years More Than 5 Years Term Loan A Facility (1) $ 93,750 $ 6,250 $ 87,500 $ — $ — Purchase commitments (2) 239,362 239,362 — — — Operating lease obligations (3) 429,945 47,136 96,363 94,155 192,291 Other obligations (4) 94,479 59,342 33,227 1,910 — Total $ 857,536 $ 352,090 $ 217,090 $ 96,065 $ 192,291 For additional information regarding manufacturing purchase commitments, see Note 12 to the condensed consolidated financial statements in Item 1 of this Quarterly Report. Risk Procedures •the highly competitive nature of the TV streaming industry that is rapidly evolving; •our ability to monetize our streaming platform; •our ability to attract advertisers and advertising agencies to our demand-side advertising platform; •our ability to develop relationships with TV brands and service operators; •our ability to establish and maintain relationships with important content publishers; •popular or new content publishers not publishing their content on our streaming platform; •maintaining an adequate supply of quality video ad inventory on our platform and selling the available supply; •content publishers electing not to participate in platform features that we develop; •irrelevant or unengaging advertising, marketing campaigns, or other promotional advertising on our platform; •our ability to attract users to and generate revenue from The Roku Channel; •users signing up for offerings and services outside of our platform; •the evolution of our industry and the impact of many factors that are outside of our control; •our and our Roku TV brand partners’ reliance on retail sales channels to sell products; •our ability to build a strong brand and maintain customer satisfaction and loyalty; •advertiser or advertising agency delayed payment or failure to pay; •maintaining adequate customer support levels; •our ability to manage streaming device and other product introductions and transitions; •our and our Roku TV brand partners’ reliance on contract manufacturers and limited manufacturing capabilities; •our ability to forecast manufacturing requirements and manage our supply chain and inventory levels; •decreased availability or increased costs for materials and components used in the manufacturing of our players and Roku TV models; •our ability to obtain key components from sole source suppliers; •interoperability of our streaming devices with content publishers’ offerings, technologies, and systems; •detecting hardware errors or software bugs in our products before they are released to users; •component manufacturing, design, or other defects that render our devices permanently inoperable; •our history of operating losses; •volatility of our quarterly operating results that could cause our stock price to decline; •our ability to manage our growth; •our ability to successfully expand our international operations; •seasonality of our business and its impact on our revenue and gross profit; •attracting and retaining key personnel and managing succession; •maintaining systems that can support our growth, business arrangements, and financial rules; •our ability to successfully complete acquisitions and investments and integrate acquired businesses; •significant disruptions of information technology systems or data security incidents; •legal obligations and potential liability or reputational harm related to the protection of personal and confidential information; •disruptions in computer systems or other services that result in a degradation of our platform; •changes in how network operators manage data that travel across their networks; •litigation resulting in the loss of important intellectual property rights; •failure or inability to protect or enforce our intellectual property or proprietary rights; •our use of open source software; •the current and future impact of the COVID-19 pandemic, supply chain disruptions, and inflationary pressures on our business; •enactment of or changes to government regulation or laws related to our business; •changes in U.S. or foreign trade policies, geopolitical conditions, and general economic conditions that impact our business; •U.S. or international rules (or the absence of rules) that permit internet access network operators to degrade users’ internet service speeds or limit internet data consumption by users; •liability for content that is distributed through or advertising that is served through our platform; •our ability to maintain effective internal controls over financial reporting; •the impact of changes in accounting principles; •compliance with laws and regulations related to the payment of income taxes and collection of indirect taxes; •changes to U.S. or foreign taxation laws or regulations; •regulatory inquiries, investigations, and proceedings; •the dual class structure of our common stock; •volatility in the trading price of our Class A common stock; •potential dilution or a decline in our stock price caused by future sales or issuance of our capital stock or rights to purchase capital stock; •a decline in our stock prices caused by future sales by existing stockholders; •dependency on favorable securities and industry analyst reports; •the significant legal, accounting, and other expenses associated with being a publicly traded company; •the absence of dividends on our Class A or Class B common stock; •anti-takeover provisions in our charter and bylaws; and * * In the past few years, the sale of Roku TV models by our TV brand partners has materially contributed to our active account growth, to our streaming hours, and to our platform monetization efforts. This growth has primarily been in the United States; however, our Roku TV licensing program has been expanded to certain international markets. We license the Roku OS and our smart TV reference designs to certain TV brand partners to manufacture co-branded smart TVs. We licensed streaming devices or chose to deploy competing streaming solutions within their product lines, our business may be harmed. •effectively promote and market new and existing streaming channels; •minimize launch delays of new and updated streaming channels; and have no access to video ad inventory at this time, and we may not secure access in the future. The amount, quality, and cost of video ad inventory available to us can change at any time. If we are unable to grow and maintain a sufficient supply of quality video ad inventory at reasonable costs to keep up with demand, our business may be harmed. advertising. the growth of The Roku Channel. We also take on risks associated with content production, such as completion and key talent risk. Furthermore, if the advertisements on The Roku Channel are not relevant to our users or such advertisements are overly intrusive and impede our users’ enjoyment of the available content, our users may not stream content and view advertisements on The Roku Channel, and The Roku Channel may not generate sufficient revenue from advertising to be cost effective for us to to discontinue selling our players or our TV brand debt could have a materially negative effect on our business, financial condition and operating results. If we are not paid by our advertisers or advertising agencies on time or at all, our business may be harmed. •the accuracy of our forecasts for market requirements beyond near-term visibility; •our ability to anticipate and react to new technologies and evolving consumer trends; •our development, licensing, or acquisition of new technologies; •our timely completion of new designs and development; •our ability to timely and adequately redesign or resolve design or manufacturing issues; •our ability to identify and contract with an appropriate manufacturer; •the ability of our contract manufacturers to cost-effectively manufacture our new products; •the availability of materials and key components used in manufacturing; •capacity constraints; •reduced component availability; •production, supply chain, or shipping disruptions or delays, including from strikes, mechanical issues, quality control issues, natural disasters, geopolitical conflicts, and public health crises; and may continue to be, adversely affected. For example, in the first quarter of 2022, some of our Roku TV brand partners faced supply chain challenges that caused them to increase the pricing of their Roku TV models, which we believe negatively affected the volume of Roku TV devices sold at retail and resulted in slower active account and streaming hour growth. advance. If we overestimate our production requirements, our contract manufacturers may purchase excess components and build excess inventory. If our contract manufacturers, at our request, purchase excess components * •supplier capacity constraints; •price increases, including increases related to inflationary pressures; •timely delivery; •component quality; and their channels on these devices. The certification processes can be time consuming and introduce third-party dependencies into our product release cycles. If content publishers do not certify new products on a timely basis or require us to make changes in order to obtain certifications, our product release plans may be adversely impacted, we may not be able to offer certain products to all TV brand partners or we may not continue to offer certain channels. To continue to grow our active accounts and user engagement, we will need to prioritize development of our streaming devices to work better with new offerings, technologies, and systems. If we are unable to maintain consistent operability of our devices that is on parity with or better than other platforms, our business could be harmed. In addition, any future changes to offerings, technologies, and systems from our content publishers, such as virtual service operators, may impact the accessibility, speed, functionality, and other performance aspects of our streaming devices. We may not successfully develop streaming devices that operate effectively with these offerings, technologies, or systems. If it becomes more difficult for our users to access and use these offerings, technologies, or systems, our business could be harmed. * •the entrance of new competitors or competitive products or services, whether by established or new companies; •our ability to retain and grow our active account base, increase engagement among new and existing users, and monetize our streaming platform; •our ability to maintain effective pricing practices in response to the competitive markets in which we operate or other macroeconomic factors, such as increased taxes or inflationary pressures, such as those the market is currently experiencing, and our ability to control costs, including our operating expenses; •our revenue mix, which drives gross profit; •supply of advertising inventory on our advertising platform and advertiser demand for advertising inventory; •seasonal, cyclical, or other shifts in revenue from advertising or player sales; •the timing of the launch of new or updated products, channels, or features; •the addition or loss of popular content or channels; •the expense and availability of content to license or produce for The Roku Channel; •the ability of retailers to anticipate consumer demand; •an increase in the manufacturing or component costs of our players or our TV brand partners’ Roku TV models; •manage a larger organization; •hire more employees, including engineers with relevant skills and experience; • increase our sales and marketing efforts; • expand the capacity to manufacture and distribute our players; • broaden our customer support capabilities; • support • expand and improve the content offering on our platform; • implement appropriate operational and financial systems; and • maintain effective financial disclosure controls and procedures. platform services. Moreover, we face intense competition in international markets, especially because some of our competitors have already successfully introduced their products into new markets we are entering and have greater experience managing a global organization. •differing legal and regulatory requirements in foreign jurisdictions, including country-specific laws and regulations pertaining to data privacy and data security, consumer protection, tax, telecommunications, trade (including tariffs, quotas, and sanctions), labor, environmental protection, censorship and other content restrictions, and local content and advertising requirements, among others; •compliance with laws such as the Foreign Corrupt Practices Act, UK Bribery Act, and other anti-corruption laws, U.S. or foreign export controls and sanctions, and local laws prohibiting improper payments to government officials and requiring the maintenance of accurate books and records and a system of sufficient internal controls; • slower consumer adoption and acceptance of streaming devices and services in other countries; •different or unique competitive pressures as a result of, among other things, competition with other devices that consumers may use to stream TV or existing local traditional pay and over-the-air TV services and products, including those provided by incumbent TV service providers and local consumer electronics companies; • greater difficulty supporting and localizing our streaming devices and streaming platform, including delivering support and training documentation in languages other than English; • our ability to deliver or provide access to popular streaming channels or content to users in certain international markets; •availability of reliable broadband connectivity in areas targeted for expansion; •challenges and costs associated with staffing and managing foreign operations; •differing legal and court systems, including limited or unfavorable intellectual property protection; •unstable political and economic conditions, social unrest or economic instability, whatever the cause, including due to pandemics, natural disasters, wars, terrorist activity, foreign invasions (such as the Russian invasion of Ukraine), tariffs, trade disputes, local or global recessions, diplomatic or economic tensions (such as the rising tension between China and Taiwan), long-term environmental risks, or climate change; •adverse tax consequences, such as those related to changes in tax laws (including increased tax rates, the imposition of digital services taxes, and the adoption of global corporate minimum taxes and anti-base-erosion rules), changes in the interpretation of existing tax laws, and the heightened scrutiny by tax administrators of companies that have cross-border business activities; •the imposition of customs duties on cross-border data flows for streaming services, in the event that the World Trade Organization fails to extend the current moratorium on such duties; •the COVID-19 pandemic or any other pandemics or epidemics, which could result in decreased economic activity in certain markets, changes in the use of our products or platform, or decreased ability to import, export, ship, or sell our products to supply such services to existing or new customers in international markets; •inflationary pressures, such as those the global market is currently experiencing, which may increase costs for materials, supplies, and services; •fluctuations in currency exchange rates, which could impact the revenue and expenses of our international operations and expose us to foreign currency exchange rate risk; •restrictions on the repatriation of earnings from certain jurisdictions; and •working capital constraints. If we invest substantial time and resources to expand our international operations and are unable to do so successfully and in a timely manner, our business and financial condition may be harmed. margin in the fourth quarter. disruptions to our business, and the integration of replacement personnel could be time-consuming and expensive and cause disruptions. Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Senior Secured Term Loan A and Revolving Credit this Quarterly Report. Accordingly, in the near future LIBOR will cease being a widely used benchmark interest rate. The current and any future reforms and other pressures may cause LIBOR to be replaced with a new benchmark or to perform differently than in the past, including during the transition period. now have a hybrid work schedule (consisting of both in-person work and working from home) in 2022. Although we have technology systems and data due to the developing sophistication and means of attack in the threat Open source software, which may be incorporated into our systems or products, inherently presents a large attack surface and may contain vulnerabilities of which we are not aware and which we cannot control or fully mitigate. For example, the Apache Log4j vulnerability discovered in December 2021 can be exploited by remote code execution, which can allow a bad actor to steal data or take over our systems. We have taken steps to patch this vulnerability by updating our relevant Apache software, but we, and the many other affected organizations, remain vulnerable in light of the widespread use of the Apache Log4i library and difficulty in identifying all instances of this library across an entire enterprise. We cannot assure you that we will not be impacted by this or other similar vulnerabilities in the future. public statements against us by advocacy groups or others, and could cause third parties, including current and potential partners, to lose trust in us and reputational harm. up to 2% of a company’s annual revenue in Brazil. We are continuing to assess the impact of new and proposed data privacy and protection laws and proposed amendments to existing laws on our business. Such restrictions could, for example, limit our ability to supply targeted advertising and thus negatively impact our business. cause reputational harm. may need to be taken to support transfers. We continue to assess the available regulatory guidance, determinations, and enforcement actions from EU Data Protection Authorities and the U.S. Department of Commerce on international data transfer compliance for companies, including guidance on specific supplementary measures in addition to the Model Clauses as well as specific data sharing that may be deemed a cross-border transfer for which appropriate safeguards must be implemented. Our ability to continue to transfer personal information outside of the EU may become significantly more costly and may subject us to increased scrutiny and liability under the GDPR or other legal frameworks, and we may experience operating disruptions if we are unable to conduct these transfers in the future. providers. and enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, time-consuming, and could result in substantial costs, and the outcome of such a claim is unpredictable. Further, the laws of certain foreign countries do not provide the same level of protection of corporate proprietary information and assets such as intellectual property, trademarks, trade secrets, know-how, and records as the laws of the United States. For instance, the legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection. As a result, we may encounter significant problems in protecting and defending our intellectual property or proprietary rights abroad. Additionally, we may also be exposed to material risks of theft or unauthorized reverse engineering of our proprietary information and other intellectual property, including technical data, manufacturing processes, data sets, or other sensitive information. Our efforts to enforce our intellectual property rights in such foreign countries may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop, which could have a material adverse effect on our business, financial condition, and results of operations. Moreover, if we are unable to prevent the disclosure of our trade secrets to third parties, or if our competitors independently develop any of our trade secrets, we may not be able to establish or maintain a competitive advantage in our market, which could harm our business. In particular, our actions to monitor and enforce our trademarks against third parties may not prevent counterfeit versions of our products or products bearing confusingly similar trademarks to ours from entering the marketplace, which could divert sales from us, tarnish our reputation, or reduce the demand for our products. platform or could result in public disclosure of competitively sensitive trade secrets. Liability under our indemnification commitments may not be contractually limited. advertisers reducing their overall advertising spend. Part II, Item 1A of this Quarterly Report. * partners. In access. otherwise adversely affect our business. cash flows. rates. outstanding common stock, and therefore Mr. Wood will have significant influence over our management and affairs and over all matters requiring stockholder approval, including election of directors and significant corporate transactions, such as a merger or other sale of Roku or our assets, for the foreseeable future. If Mr. Wood’s employment with us is terminated, he will continue to have the same influence over matters requiring stockholder approval. •changes in projected operational and financial results; •our loss of key content publishers; •changes in laws or regulations applicable to our devices or platform; •the commencement or conclusion of legal proceedings that involve us; •announcements of new products or services by us or our competitors; •announcements by us or our competitors of significant acquisitions, strategic partnerships, or joint ventures; •capital-raising activities or commitments; •additions or departures of key personnel; •issuance of new or updated research or reports by securities analysts; •the use by investors or analysts of third-party data regarding our business that may not reflect our financial performance; •fluctuations in the valuation of companies perceived by investors to be comparable to us; •sales of our Class A common stock, including short selling of our Class A common stock; •share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; return on your investment in us and may lose some or all of your investment. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation or derivative litigation. •establishing a classified Board of Directors so that not all members of our Board of Directors are elected at one time; •permitting the Board of Directors to establish the number of directors and fill any vacancies and newly created directorships; •providing that directors may only be removed for cause; •prohibiting cumulative voting for directors; •requiring super-majority voting to amend some provisions in our certificate of incorporation and bylaws; •authorizing the issuance of “blank check” preferred stock that our Board of Directors could use to implement a stockholder rights plan; •eliminating the ability of stockholders to call special meetings of stockholders; •any derivative action or proceeding brought on our behalf; •any action asserting a breach of fiduciary duty; •any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation, or our bylaws; and action arising under the Securities Act. Proceeds Securities Disclosures Information Incorporation by reference Exhibit Number Description Form SEC File No. Exhibit Filing Date 3.1 Amended and Restated Certificate of Incorporation of Roku, Inc. 8-K 001-38211 3.1 10/03/2017 3.2 S-1/A 333-220318 3.4 9/18/2017 4.1 Reference is made to Exhibits 3.1 through 3.2. 4.2 S-1/A 333-220318 4.1 9/18/2017 10.1 8-K 001-38211 1.1 3/2/2021 10.2*# Forms of Restricted Stock Unit Grant Notice and Award Agreement under 2017 Equity Incentive Plan 31.1* 31.2* 32.1** 32.2** 101.INS* Inline XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, has been formatted in Inline XBRL. By: /s/ Anthony Wood Anthony Wood Date: By: /s/ Steve Louden Steve Loudenraterate): As of March 31, 2022 December 31, 2021 Operating lease right-of-use assets $ 401,154 $ 345,660 Operating lease liability, current (included in Accrued liabilities) $ 43,273 $ 37,116 Operating lease liability, non-current 444,115 394,724 Total operating lease liability $ 487,388 $ 431,840 Weighted-average remaining term for operating leases (in years) 8.47 8.38 Weighted-average discount rate for operating leases 3.70 % 3.98 % 20212022 are as follows (in thousands):Year Ending December 31, Operating Leases 2022 (remaining 9 months) 2022 (remaining 9 months) $ 42,216 2023 66,166 2024 64,539 2025 68,737 2026 2026 69,013 Thereafter 273,507 Total future lease payments 584,178 Less: imputed interest (84,730) Less: expected tenant improvement allowance (12,060) Total $ 487,388 2021,2022, the Company’s commitment relating to operating leases that have not yet commenced was $42.4$192.6 million. These operating leases will commence starting in fiscal year 20212022 with lease terms of twoapproximately three to eleven years.20212022 and December 31, 20202021 is as follows (in thousands)thousands, except interest rates): As of March 31, 2022 December 31, 2021 Amount Amount Term Loan A Facility $ 88,750 3.4% $ 90,000 2.0% Less: Debt issuance costs (102) (132) Net carrying amount of debt $ 88,648 $ 89,868 Interest The interest expense for the three months ended March 31, 2022 and 2021 was $0.8 million and 2020 associated with the Term Loan A Facility is $0.5 million, and $0.6 million, respectively. (the “Original Closing Date”), the Company entered into a Credit Agreement (the “Existing Credit Agreement”) with Morgan Stanley Senior Funding, Inc. On(as amended on May 3, 2019, (the “Closing Date”), the Existing Credit Agreement was amended pursuant to an Incremental Assumption and Amendment No. 1 (the “Amendment” and the Existing Credit Agreement as amended by the Amendment, the “Credit Agreement”). On the Original Closing Date, the Company terminated the Amended and Restated Loan and Security Agreement that it entered into with Silicon Valley Bank in November 2014 (the “Restated 2014 LSA”).13The Credit Agreement, which provides for (i) a four-year revolving credit facility in the aggregate principal amount of up to $100.0 million (the “Revolving Credit Facility”), (ii) a four-year delayed draw term loan A facility in the aggregate principal amount of up to $100.0 million (the “Term Loan A Facility”) and (iii) an uncommitted incremental facility subject to the satisfaction of certain financial and other conditions, in the amount of up to (v) $50.0 million, plus (w) 1.0x of the Company’s EBITDA for the most recently completed four fiscal quarter period, plus (x) an additional amount at the Company’s discretion, so long as, on a pro forma basis at the time of incurrence, the Company’s secured leverage ratio does not exceed 1.50 to 1.00, plus (y) voluntary prepayments of the Revolving Credit Facility and Term Loan A Facilityconditions. See Note 10 to the extent accompanied by concurrent reductions toconsolidated financial statements in our Annual Report for additional details regarding the applicable Credit Facility(together with the Revolving Credit Facility and the Term Loan A Facility, collectively, the “Credit Facility”).the Term Loan A facility in thean aggregate principal amount of $100.0 million. On March 24, 2020, the Company borrowed the available balance of $69.3 million from the Revolving CreditTerm Loan A Facility. For both borrowings, theThe Company elected an interest rate equal to the adjusted one-month LIBOR rate plus an applicable margin of 1.75% based on the Company’s secured leverage ratio.Loans The borrowings under the Term Loan A Facility amortize in equal quarterly installments beginning on March 31, 2020, in an aggregate annual amount equal to (i) onCredit Agreement mature or prior to December 31, 2021, 1.25% of the drawn principal amount of the Term Loan Facility or $1.25 million and (ii) thereafter, 2.50% of the drawn principal amount of the Term Loan Facility or $2.5 million, with the remaining balance payable on the maturity date of the Term Loan A Facility in February 2023. The Revolving Credit Facility may be borrowed, repaid and reborrowed until the fourth anniversary of the Closing Date in February 2023, at which time all outstanding balances of the Revolving Credit Facility are duehave to be repaid.$30.8$38.0 million as of March 31, 20212022 and December 31, 2020, respectively.The Company’s obligations under the Credit Agreement are secured by substantially all of its assets. In the future, certain of its direct and indirect subsidiaries may be required to guarantee the Credit Agreement. The Company may prepay, and in certain circumstances would be required to prepay, loans under the Credit Agreement without payment of a premium. The Credit Agreement contains customary representations and warranties, customary affirmative and negative covenants, a financial covenant that is tested quarterly and requires the Company to maintain a certain adjusted quick ratio of at least 1.00 to 1.00, and customary events of default.2021,2022, the Company was in compliance with all of the covenants of the Credit Agreement.20212022 and December 31, 2020,2021, there were 0no shares of preferred stock issued and outstanding.one1 vote for each share of Class A common stock held on all matters submitted to a vote of stockholders and holders of Class B common stock are entitled to ten10 votes for each share of Class B common stock held on all matters submitted to a vote of stockholders. Except with respect to voting, the rights of the holders of Class A and Class B common stock are identical. Shares of Class B common stock are voluntarily convertible into shares of Class A common stock at the option of the holder and are generally automatically converted into shares of the Company's Class A common stock upon sale or transfer. Shares issued in connection with exercises of stock options, vesting of restricted stock units, or shares purchased under the employee stock purchase plan are generally automatically converted into shares of the Company’s Class A common stock.14$1,000.0$1,000.0 million and incurred issuance costs of $10.4 million.Forfor Future Issuance2021,2022, the Company had reserved shares ofCompany’s common stock reserved for issuance in the future is as follows (in thousands):As of March 31, 20212022 12,291 11,457*(1)5,089 5,08930,103 27,84747,483 44,393* offering.offering (“IPO”). No further sharesadditional equity grants have been issued undermade pursuant to the 2008 Plan.Plan subsequent to the IPO. The 2017 Plan provides for the grant of incentive stock options to the Company’s employees and for the grant of non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards, and other forms of equity compensation to the Company’s employees, directors and consultants.Restricted stock unitsplan are subject to continuous service. Options granted under the plans2017 Plan generally are granted at a price per share equivalent to the fair market value on the date of grant. Recipients of option grants who possess more than 10% of the combined voting power of the Company (a “10% Shareholder”) are subject to certain limitations, and incentive stock options granted to such recipients are at a price per share no less than 110% of the fair market value aton the date of grant.20212022 is as follows (in thousands, except per share data): Balance as of December 31, 2021 Balance as of December 31, 2021 3,286 $ 169.76 Awarded 3,796 140.48 Released (395) 99.76 Forfeited (136) 160.81 Balance as of March 31, 2022 Balance as of March 31, 2022 6,551 $ 157.20 The grant-date fair value restricted stock units granted during the three months ended March 31, 2021 and 2020 was $37.22022, the Company had $913.3 million and $53.6 million, respectively. The grant-date fair value of unrecognized stock-based compensation expense related to unvested restricted stock units that vested during the three months ended March 31, 2021 and 2020 was $27.8 million and $17.1 million, respectively. Total unrecognized compensation cost relatedis expected to restricted stock units as of March 31, 2021 was $330.7 million, which the Company expects to recognizebe recognized over a weighted-average period of approximately 2.112.82 years.15(in thousands, except per share data):The weighted average grant-date fair value of options granted duringfor the three months ended March 31, 20212022 (in thousands, except years and 2020, was $154.43 and $42.17, respectively. The intrinsic value for options exercised in the three months ended March 31, 2021 and 2020, was $494.1 million and $52.7 million, respectively. Intrinsic value represents the difference between the fair values of the Company’s common stock and the options’ exercise price on the date of grant. Balance as of December 31, 2021 6,174 $ 51.87 5.8 Granted 5 159.94 — Exercised (439) 7.64 — Forfeited and expired — — — Balance as of March 31, 2022 5,740 $ 55.34 5.7 $ 487,095 Options exercisable as of March 31, 2022 4,258 $ 17.59 4.9 $ 464,702 2021,2022, the Company had $44.8 $60.3 million of unrecognized stockstock-based compensation expense related to unvested stock options that is expected to be recognized over a weighted-average period of approximately 1.79 1.88 years.Generally, stockStock options granted to employees generally vest 25% after over one year and then 1/48th monthly thereafter to four years and have a term of ten years. Restricted stock units generally vest over 4four years. For the three months ended March 31, 20212022 and 2020,2021, the amount of stock-based compensation capitalized as part of internal useinternal-use software was not material.20212022 and 20202021 (in thousands): Three Months Ended March 31, 2022 March 31, 2021 Cost of revenue, platform Cost of revenue, platform $ 569 $ 198 Cost of revenue, player Cost of revenue, player 236 415 Research and development 28,390 16,554 Sales and marketing 23,911 13,363 General and administrative 16,474 10,007 Total stock-based compensation $ 69,580 $ 40,537 The fair value of options granted under the equity incentive plans is estimated on the grant date using the Black-Scholes option-valuation model. The assumptions used in the Black-Scholes model are as follows:Three Months EndedMarch 31, 2021March 31, 2020Expected term (in years)5.0 - 6.05.0Risk-free interest rate0.36 - 0.80%0.88 - 1.67%Expected volatility38.3 - 39.0%36.0%Dividend rate——2021,2022, the Company had $239.4$189.1 million of non-cancelable purchase commitments for inventory.LicenseAs of March 31, 2021, the Company recognized a liability of $89.8 million in Accrued liabilities and $2.2 million in Other long-term liabilities for licensed content that is available for streaming. As of December 31, 2020, the Company recognized a liability of $6.2 million in Accrued liabilities and $1.4 million in Other long-term liabilities for licensed content that was available for streaming. In connection with the acquisition of certain content rights, the Company also assumed liabilities related to certain costs of the development and use of certain assets that had been incurred but not paid at the time assumed. Escrow arrangements were put in place such that selling shareholders will cover such costs. Accordingly, the Company has recognized both an indemnification asset and liability of $81.4 million, respectively, as of March 31, 2021. This indemnification asset is recorded as part of Prepaid and other current assets and the indemnification liability is recorded as part of Accrued liabilities in the condensed consolidated balance sheets. also enters into contracts with content publishers to acquirelicense content or to buy ad inventory infor streaming. When a title becomes available, the future. Company records an asset and a liability on the condensed consolidated balance sheets.2021,2022, the Company's total obligation for licensed content is $444.7 million, of which the Company had $94.5recorded $106.3 million in commitments with content publishers that are non-cancellable. These commitments include both content that is available for streamingCurrent liabilities and is recognized as$56.4 million in Other long-term liabilities as well as content thatin the condensed consolidated balance sheet. The remaining $282.0 million is not yet availablerecognized on the condensed consolidated balance sheets as the content does not meet the criteria for streaming or ad inventoriesasset recognition.Year Ending December 31, 2022 (remaining 9 months) $ 195,594 2023 118,531 2024 66,949 2025 39,535 2026 10,713 Thereafter 13,362 Total content obligations $ 444,684 yet purchased.20212022 and December 31, 2020,2021, the Company had irrevocable letters of credit outstanding in the amount of $30.8$38.0 million and $30.9 million, respectively, related to facilitiesoperating leases. The letters of credit have various expiration dates through 2030.In connection with During the acquisition of certain content rights,three months ended March 31, 2022 and 2021, the Company became jointly and severally liable for all liabilities arising from an office lease. Prior to the acquisition, the lease was assigned to an entity unaffiliated with the Company, which is now the primary lessee and which pays the liabilities associated with such office lease on an ongoing basis. The Company doesdid not have access to the leased property, nor does it have a right to use the building, however the Company is a guarantor of the lease. The estimated maximum amount owed for the remaining term of the lease at the time of the acquisition was approximately $35.0 million. Escrow arrangementsany loss contingencies that were put in place to cover foreseeable liabilities that potentially could be incurred by the Company.17and 2020 is not material.2021,2022, management believes it is more likely than not that thesome deferred tax assets will not be fully realizable. Accordingly, the Company has provided a full valuation allowance against its deferred tax assets, withincluding net operating losses primarily for the exception of deferred tax assets relatedU.S. and any jurisdiction where the Company does not expect to foreign entitiesrealize its benefits in Brazil, Canada, China, Denmark, India, Netherlands, Taiwan and the U.K.The primary difference between the effective tax rate and the statutory tax rate relates to the valuation allowance on the Company’s U.S. losses. and unvested shares of common stock issued upon the early exercise of stock options are considered common stock equivalents. Dilutive shares of common stock are determined by applying the treasury stock method. The dilutive shares are excluded from the calculation of diluted net loss per share in the period of net loss, as their effect is antidilutive. Three Months Ended March 31, 2022 March 31, 2021 Numerator: Net income (loss) $ (26,306) $ 76,296 Denominator: Basic net income (loss) per share: Basic net income (loss) per share: Weighted-average common shares outstanding — basic 135,539 129,674 Net income (loss) per share — basic $ (0.19) $ 0.59 Diluted net income (loss) per share: Diluted net income (loss) per share: Weighted-average common shares outstanding — basic 135,539 129,674 Effect of potentially dilutive securities: Effect of potentially dilutive securities: Restricted stock units Restricted stock units — 3,411 Stock options Stock options — 7,243 Weighted-average common shares outstanding — diluted 135,539 140,328 Net income (loss) per share — diluted $ (0.19) $ 0.54 Commonor excluded from the calculation of diluted net loss(loss) per share because of their anti-dilutive effect are as follows (in thousands): effect.share includingshares, media and entertainment promotional spending, the sale of Premium Subscriptions, and the sale of branded channel buttons on remote controlscontrols), and licensing arrangements with service operators and TV brands.arenet, were as follows: Three Months Ended March 31, 2022 March 31, 2021 Platform segment revenue: Platform segment revenue: Customer H * 14 % Player segment revenue: Player segment revenue: Customer A * 10 % Customer B 21 % 23 % Customer C 38 % 39 % 20212022 and December 31, 2020.16. SUBSEQUENT EVENTOperations.on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020,2021, filed on February 26, 2021,18, 2022, with the SEC (the “Annual Report”).revenuereportable segments: the platform segment and the player segment. Platform revenue is generated from the sale of digital advertising and related services, including our OneView ad platform, content distribution services (such as subscription and transaction revenue shares, media and entertainment promotional spending, the sale of Premium Subscriptions, billing services,and the sale of branded channel buttons on remote controlscontrols), and licensing arrangements with service operators and TV brands.players.players and audio products. We expect to continue to manage the average selling prices (“ASP”) of our streaming players to increase our active accounts. As a result, player revenues may not increase as they have historically. We expect that the tradeofftrade off from player gross profit or loss to grow active accounts will result in increased platform monetizationrevenue and platform gross profit.widespread global impact from the outbreakCOVID-19 pandemic continues to evolve. Governmental authorities update their precautionary measures and spread of the novel strain of coronavirus referredpromote vaccination programs to as COVID-19, which was declared a pandemic by the World Health Organization in March 2020, continued through the end of the first quarter of 2021. Precautionary measures to slow downmanage the spread of the virus that were put in place by governmental authorities have eased in many locations but have been re-instated in other geographies. We continue to haveas different variants of the majority of our workforce work from home to protect the healthvirus surface and safetysubside. Most of our employees now have a hybrid work schedule (consisting of both in-person work and travel has been severely curtailed. working from home) in 2022.U.S.United States and globally, as well as significant volatility in, and disruption to, financial markets.The ongoing COVID-19 pandemic continues to accelerate the shift of TV viewing away from traditional pay TV to streaming TV. We continued to seemarkets and supply chains. Global supply chain disruptions have resulted in shipping delays, increased shipping costs, component shortages, and increases in both active accounts and streaming hours during three months ended March 31, 2021. Active accounts increased to 53.6 million as of March 31, 2021, growing 35% year-over-year. Streaming hours grew 49% year-over-year to 18.3 billion as of March 31, 2021. Our platform revenue continues to perform well, year-over-year growing 101%component prices. The increasing component costs put additional constraints on our player gross margin resulting in a gross loss in the player segment for the three months ended March 31, 2021. We2022. Though we do not believe advertising budgets willthat the cost constraints and supply chain issues are permanent, they may continue to shift from traditional linearimpact us and we expect our player gross margin to be negative in the near term. In addition, some of our TV to streaming TVbrand partners have faced inventory challenges that have negatively impacted their unit sales. Some of our advertising verticals experienced supply chain disruptions that negatively impacted their product availability and that we will benefit from this shift due to our advancedresulted in advertisers reducing their overall advertising capabilities. Major content publishers continue to re-organize around streaming and as a result, our content distribution business has benefited as our rapid rate of active accounts growth was accompanied by strong consumer demand for ad-supported viewing, subscription services and premium movie rentals.spend. While we have experienced an increase in TV streaming during the peak of the COVID-19 pandemic and our business has generally has benefitted,benefited, there can be no assurance that these patterns will continue throughout 2021. With exceptional performance in the second half of 2020, some of our year-over-year comparisons in 2021 may be volatile.have largely been able to maintain an inventory of our players, audio products and accessories in stock at retailers and online stores throughout the COVID-19 pandemic. However, like many manufacturers, we are affected by the constraints in the global supply chain of certain components which impact our player margins. While our player and Roku TV model sales have remained strong duringbelieve that as the COVID-19 pandemic thereevolves, the direct and indirect impacts on global macro economic conditions, as well as conditions specific to us, are becoming more difficult to isolate or quantify. In addition, these direct and indirect factors can be no assurancemake it difficult to isolate and quantify the portion of our costs that these patterns will continue throughoutare a direct result of the pandemic or beyond.In 2020, we closely monitored and decreased our operating expenses to mitigate the uncertainties causedcosts arising from factors that may have been influenced by the COVID-19 pandemic.pandemic, including supply chain constraints, increased component prices, and changes in the spending pattern of advertisers. We now expect to make sequential increases in operating expenses to sustain our growththese factors and competitive advantage. This is expected to have an impacttheir effects on our results of operations. Throughout this process we will continue to monitor our operating expenses and capital expenditures and are committed to investing in strategic areas to grow our business and extend our competitive advantages.20Average Revenue Per Useraverage revenue per user (“ARPU”).The majoritySubstantially all of our gross profit is generated from our platform segment.$326.8$364.8 million and $141.1$326.8 million for the three months ended March 31, 2022 and 2021, and 2020, respectively.53.661.3 million and 39.853.6 million active accounts as of March 31, 2022 and 2021, and 2020, respectively.Additionally, we Moreover,auto-play subsequentcontinue to play content for a period of time determined by the streaming channel. We believe that this also occurs across a wide variety of non-Roku streaming devices and other set-top boxes.During However, since the first quarter of 2020, we completed the deployment across all of our devices ofinclude a new Roku OS feature that is designed to identify when content has been continuously streaming on a channel for an extended period of time without user interaction. This feature which we refer to as “Are you still watching,” periodically prompts the user to confirm that they are still watching the selected channel and closes the channel if the user does not respond affirmatively. We believe that the implementation of this feature across the Roku platform benefits us, our customers, channel partners and advertisers. Some of our leading channel partners, including Netflix, also have implemented similar features within their channels. This Roku OS feature supplements these channel features.features, and we believe that it benefits us, our customers, channel partners, and advertisers. This feature has not had and is not expected to have a material impact on our future financial performance.18.320.9 billion and 12.318.3 billion hours during the three months ended March 31, 2022 and 2021, and 2020, respectively.Note About Our Streaming Hours AdjustmentsTo calculate and report our streaming hours, we utilize data from event logs generated by the firmware running on the Roku devices that are recorded in a central database. The event information (play, pause, stop, time counts, etc.) is generated by the firmware running on the Roku streaming devices, and event data is transmitted to our central database at regular intervals when a device is connected to the internet. Pause time is not intended to be included in streaming hours.21During the second quarterrespectively, reflecting an increase of 2020 we discovered that some pause time was inadvertently included in the streaming hours information recorded in our central database. Upon discovering these errors in the log data, we promptly reviewed and analyzed the issue utilizing our firmware, data engineering and core analytics teams. We concluded that certain past Roku OS releases inadvertently caused the logging errors. The error rates varied over time and across different types of devices and firmware versions. As a result, we reported higher streaming hours and streaming hours growth rates for the affected periods than we would have if all pause time had been excluded from streaming hours as we had intended. Neither these logging errors, nor the resulting adjustments that we made to our streaming hours calculations, has had any impact on our financial results, and do not require us to revise any of our previously reported key operating metrics other than streaming hours.The affected log data was for the periods from February 2016 to August 2020. After adjusting for logging errors, we estimate that our streaming hours were, on average, approximately 0.5% lower than previously reported for the period January 2017 through September 2018, and approximately 5.8% lower for the period October 2018 through March 2020.By the end of August 2020, we fully deployed a software update that addressed the root cause of the pause time logging errors and prevented them from continuing.The roll out of the “Are you still watching” feature had no impact on the adjustments we made to our streaming hours calculations. While our revenue from content publishers is not based on the hours streamed on their streaming channels, and the number of streaming hours does not directly correlate to revenue earned from such content publishers or ARPU on a period-by-period basis, we believe that the growth in the number of hours of content streamed across our platform reflects our success in addressing the growing user demand for TV streaming. After adjusting our streaming hours as discussed above, our estimated year-over-year streaming hour growth rates for fiscal year 2018 versus fiscal year 2017, fiscal year 2019 versus fiscal year 2018 and the first quarter of 2020 versus the first quarter of 2019 were 60.5%, 59.3% and 46.8%, respectively. The estimated year-over-year streaming hour growth rate for the second quarter of 2020 versus the second quarter of 2019 was 65%14%.The following table presents the estimated impacts on streaming hours (in billions) for periods from January 1, 2017 through March 31, 2020 and streaming hours growth rates on a year-over-year (“YoY”) basis by quarter for periods from January 1, 2018 through March 31, 2020 and annually for fiscal year 2018 and 2019. Revised streaming hours for 2016 are not estimated and therefore revised 2017 YoY growth rates are not available.as compared to $24.35 asreflecting an increase of March 31, 2020. with partners,media and entertainment promotional spending, the sale of Premium Subscription services, salesSubscriptions, and the sale of branded channel buttons on remote controlscontrols), and licensing arrangements with service operators.operators and TV brands. Our first-partyad inventory includes video ad inventory includesfrom AVOD content in The Roku Channel, native display ads on our home screen and screen saver, as well as ad inventory we obtain through our content distribution agreements with publishers. To supplement supply, we re-sell video inventoryCanada, the United Kingdom, France, the Republic of Ireland, Mexico, Brazilvarious countries in North America, South America, and several other Latin American countries.arrangementsacquiring advertising inventory, amortization costs of content, both licensed and produced, and revenue share with content partners and publishers, including advertising inventory and content or programming licensing fees.publishers. Cost of platform revenue also includes other costs such as payment processing fees, allocated expenses associated with the delivery of our services including,that primarily include costs of third-party cloud services and salaries, benefits, and stock-based compensation for our partner and customer support teams, third-party cloud servicesand platform operations personnel, and amortization of acquired developed technology.player manufacturing costs for streaming players and audio products payable to our third-party contract manufacturers and technology licenses or royalty fees. Cost of player revenue also includes inbound and outbound freight, dutyduties and logistics costs, third-party packaging, inventory reserves, and allocated overhead costs related to facilities and customer support, and salaries, benefits, and stock-based compensation for operations personnel.player and TV products, advertisingplayer products and other platform services.23 expense for our employees engaged in sales and sales support, marketing, communications, data science and analytics, business development, product management, and partner and customer support functions. Sales and marketing expenses also include marketing, retail and merchandising costs, and allocated facilities and overhead expenses. We expect sales and marketing expenses to increase in absolute dollars in future periods as we focus on growing active accounts, platform and player revenues,revenue, and expanding our business internationally. executive, finance, legal, information technology, human resources, and other administrative personnel. General and administrative expenses also include outside legal, accounting, and other professional service fees as well as allocated facility expenses. We expect our general and administrative expenses to increase due to the expansion of our business and related infrastructure. and 2020, primarily includes interest on our Credit Facilitydebt and amortization of deferred debt costs, foreign currency re-measurement, and transaction gains and losses. Expense expense consists primarily of income taxes in certain foreign jurisdictions where we conduct business and state income taxes in the United States. We have a valuation allowance for U.S. deferred tax assets, including net operating loss carryforwardslosses primarily for U.S. and tax credits related primarilyany jurisdiction where we do not expect to research and development.realize their benefits in the future. We expect to maintain this valuation allowance for the foreseeable future.24our resultsselected condensed consolidated statements of operations data as a percentage of net revenue.total revenue for each of the periods indicated. Three Months Ended March 31, 2022 March 31, 2021 Net Revenue: Platform 88 % 81 % Player 12 % 19 % Total net revenue 100 % 100 % Cost of Revenue: Platform 36 % 27 % Player 14 % 16 % Total cost of revenue 50 % 43 % Gross Profit (Loss): Gross Profit (Loss): Platform 52 % 54 % Player (2) % 3 % Total gross profit 50 % 57 % Operating Expenses: Research and development 22 % 18 % Sales and marketing 20 % 15 % General and administrative 11 % 11 % Total operating expenses 53 % 44 % Income (Loss) from Operations (3) % 13 % Other Income (Expense), Net: Other Income (Expense), Net: Interest expense — % — % Other income (expense), net Other income (expense), net — % — % Total other income (expense), net Total other income (expense), net — % — % Income (Loss) Before Income Taxes Income (Loss) Before Income Taxes (3) % 13 % Income tax expense (benefit) Income tax expense (benefit) — % — % Net Income (Loss) Net Income (Loss) (3) % 13 % 20212022 and March 31, 2020Three Months Ended March 31, 2022 March 31, 2021 Change $ Change % (in thousands, except percentages) Platform $ 646,904 $ 466,526 $ 180,378 39 % Player 86,795 107,657 (20,862) (19) % Total net revenue Total net revenue $ 733,699 $ 574,183 $ 159,516 28 % $234.0$180.4 million, or 101%39%, during the three months ended March 31, 20212022 as compared to the three months ended March 31, 2020.2021, primarily from higher revenue from advertising and content distribution services, such as media and entertainment promotional revenue and distribution of Premium Subscriptions through The Roku Channel. The increase in the variety of content, both licensed and original productions, have significantly increased the advertising opportunities available on the platform.Three Months Ended March 31, 2022 March 31, 2021 Change $ Change % (in thousands, except percentages) Cost of Revenue: Platform $ 266,985 $ 154,590 $ 112,395 73 % Player 101,907 92,822 9,085 10 % Total cost of revenue $ 368,892 $ 247,412 $ 121,480 49 % Gross Profit (Loss): Platform $ 379,919 $ 311,936 $ 67,983 22 % Player (15,112) 14,835 (29,947) (202) % Total gross profit $ 364,807 $ 326,771 $ 38,036 12 % mostly attributableprimarily driven by higher cost of acquiring content that includes content amortization costs, Premium Subscription costs, content publisher revenue share and credit card processing fees, and higher cost of acquiring advertising inventory totaling $95.5 million. Platform costs increased an additional $16.4 million due to higher advertising revenues, including revenue from our demand-sideincreases in cloud services costs for supporting the platform and higher content distribution and related transactional revenues, including from Premium Subscriptions.PlayerPlayerpersonnel costs.$19.4$68.0 million, or 22%, during the three months ended March 31, 20212022 as compared to the three months ended March 31, 2020,2021, primarily due to an increasedriven by the overall growth in the volumeour platform revenue.streaming players sold in addition toplayer revenue increased revenues from the sale of audio products and accessories. Duringby $9.1 million, or 10%, during the three months ended March 31, 2021, the volume of streaming players sold increased 14%2022 as compared to the three months ended March 31, 2020 offset by a 2% decrease in the average selling price of players.2021. The increase in the volumeis driven by higher inventory reserves of players sold was a result of consumers spending more time at home$5.0 million due to the continuing COVID-19 pandemic.25Costincreased lower of Revenuecost or market valuation loss on existing inventory, higher manufacturing costs of $1.4 millionProfitPlatformThe cost of platformprofit for player revenue increaseddecreased by $52.7$29.9 million, or 52%202%, during the three months ended March 31, 20212022 as compared to the three months ended March 31, 2020. This increase is primarily2021, resulting in a gross loss for the three months ended March 31, 2022. The loss was mainly driven by reduced player revenue during the quarter combined with higher advertising related costs including inventory acquisition costs,costs. We believe that the cost increases and supply chain issues will continue in additionthe near future, and we expect to higher content licensing fees, programming feesincur negative gross margin in the player segment in the near term.Three Months Ended March 31, 2022 March 31, 2021 Change $ Change % (in thousands, except percentages) Research and development $ 163,998 $ 101,581 $ 62,417 61 % Sales and marketing 146,522 88,873 57,649 65 % General and administrative 77,777 60,511 17,266 29 % Total operating expenses $ 388,297 $ 250,965 $ 137,332 55 % credit card processing fees totaling $51.8 milliondevelopmentincrease in allocated personnel and operational overhead costs of $1.7 million.Gross profit for platform revenuedevelopment expenses increased by $181.3$62.4 million, or 139%61%, during the three months ended March 31, 20212022 as compared to the three months ended March 31, 2020, primarily driven by the overall growth in our platform revenues.PlayerThe cost of player revenue increased by $15.1 million, or 19%, during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The increase in the cost of player revenue is primarily due to an increase in the volume of players sold. The increase is from higher product costs of $16.1 million, higher royalty expense of $2.4 million offset by reduction in inventory reserves and overhead costs of $3.3 million.Gross profit for player revenue increased by $4.4 million, or 42%, during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, driven by higher sales volumes of player products and accessories and lower direct manufacturing costs.Operating ExpensesResearch and DevelopmentResearch and development expenses increased by $13.3 million, or 15%, during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.2021. The increase is primarily due to increases in personnel-related costs of $14.0$46.4 million, as a result of increased engineering headcount and related stock-based compensation, higher facilities and information technology costs of $12.3 million from expansion of office facilities, computer equipment, and infrastructure to support growth and higher headcount, and higher consulting, professional serviceservices, and consulting fees of $4.5 million offset by higher allocations of overhead costs to Cost of revenue, platform and player of $2.5 million, lower facilitiescloud services costs of $1.5 million and lower travel expenses of $1.2 million due to the continuing COVID-19 pandemic.Marketing$20.6$57.6 million, or 30%65%, during the three months ended March 31, 20212022 as compared to the three months ended March 31, 2020.2021. The increase is primarily due to increases in personnel-related costs of $12.7$39.6 million related to increased headcount and related stock-based compensation in sales and sales support, product26Other salesSales and marketing expenses also include an increase of $10.8$9.4 million mainly due to increases in marketing, retail and merchandising costs, offset by lowerand advertising expenses to promote the Roku brand, an increase of $3.2 million in professional services and consulting fees, and an increase in facilities and information technology costs of $4.3 million to support expansion of office facilities and lower travel expenses of $2.8 million due to the continuing COVID-19 pandemic.Administrative$20.8$17.3 million, or 52%29%, during the three months ended March 31, 20212022 as compared to the three months ended March 31, 2020.2021. The increase is primarily due to increases in personnel-related costs of $13.0$12.3 million related to increased headcount and related stock-based compensation and an increase in facilities and information technology costs of $10.3$3.9 million related to support expansion of office facilities and higher legal, consulting and professional service fees offset by a lower provision of doubtful accounts of $3.1 million.headcount.Three Months Ended March 31, 2022 March 31, 2021 Change $ Change % (in thousands, except percentages) Interest expense $ (1,057) $ (742) $ (315) 42 % Other income (expense), net 409 441 (32) (7) % Total other income (expense), net Total other income (expense), net $ (648) $ (301) $ (347) 115 % income (expense)expense, net, increased by $0.3 million, or 115%, net, decreased by $0.7 million during the three months ended March 31, 20212022 as compared to the three months ended March 31, 2020. 2021. The increased expense was primarily driven by an increase in interest expense of $0.3 million due to higher interest rates on the outstanding debt, foreign exchange losses of $0.7 million offsetnet was lower inof $0.4 million from improved interest rates on our cash balance and higher other income of $0.3 million related to non-cash consideration associated with the delivery of services for a strategic commercial arrangement.Three Months Ended March 31, 2022 March 31, 2021 Change $ Change % (in thousands, except percentages) Income tax expense (benefit) $ 2,168 $ (791) $ 2,959 (374) % due to lower interest incomedriven primarily by the adoption of $1.8 millionnew U.S. tax legislation from the Tax Cuts and Jobs Act, effective January 1, 2022, and a significant dropdecrease in interest rates, which impacted our investment yields. This was offset by favorable foreign exchange totaling $0.7 million primarily related to the British Pound Sterling. Income Tax (Benefit) ExpenseIncomestock-based compensation excess tax benefit arises from foreign income taxes.2021,2022, we had cash and cash equivalents of $2,077.5$2,235.1 million. Less than 1%Approximately 1.1% of our cash was held outside the United States in accounts held by our foreign subsidiaries, which are used to fund foreign operations.stock optionequity incentive plans. The primary uses of cash are costs of revenue, including third party manufacturing costs, costs to acquire advertising inventory, costs to acquire content and programming license feesthrough licensing, producing or revenue sharing, third-party manufacturing costs, as well as operating expenses including payroll-related expenses, consulting and professional service fees, and facility and marketing expenses. Other uses of cash include purchases of property and equipment and mergers and acquisitions.We have multi-year lease agreements for office spacehave incurred material facility and building expenses. Weworkforce continue to expand, we expect to continue to incur expenses for facility and building related costs atfor our office locations in the U.S.United States and internationally. AsIn addition, we expect to continue our business and workforce continue to expand, we further expect ongoinginvestments in purchases of computer systems and other investments in property and equipment. In addition, weWe have pursued merger and acquisition activities, such as the acquisition of the Nielsen AVA business, the This Old House business, and content rights from Quibi in fiscal year 2021, and we may pursue additional merger and acquisition activities in the future, including the acquisition of rights to programming and content assets, that couldfuture. These activities can materially impact our liquidity and capital resources.FacilityAgreement will be sufficient to meet our working capital, capital expenditures, and material cash requirements from known contractual obligations for at least the next twelve months.months and beyond. Our future capital requirements, the adequacy of available funds, and cash flows from operations could be affected by various risks and uncertainties, including, but not limited to, those detailed in Part II, Item 1A, Risk Factors and the effects of the COVD-19COVID-19 pandemic. While the pandemic has not severely impacted our liquidity and capital resources to date, it has27At-the-Market OfferingOn March 2, 2021, we entered into an Equity Distribution Agreement with Morgan Stanley & Co. LLC, Citigroup Global Markets Inc. and Evercore Group L.L.C., as our sales agents, pursuant to which we could offer and sell from time-to-time shares of our Class A common stock for aggregate gross proceeds of up to $1,000.0 million. In March 2021, we sold approximately 2.6 million shares of Class A common stock at an average selling price of $379.26 per share, for aggregate gross proceeds of $1,000.0 million and incurred issuance costs of $10.4 million. (the “Original Closing Date”), we entered into a Credit Agreement (the “Existing Credit Agreement”) with Morgan Stanley Senior Funding, Inc. On(as amended on May 3, 2019, (the “Closing Date”), the Existing Credit Agreement was amended pursuant to an Incremental Assumption and Amendment No. 1 (the “Amendment” and the Existing Credit Agreement as amended by the Amendment, the “Credit Agreement”).The Credit Agreement, which provides for (i) a four-year revolving credit facility in the aggregate principal amount of up to $100.0 million (the “Revolving Credit Facility”), (ii) a four-year delayed draw term loan A facility in the aggregate principal amount of up to $100.0 million (the “Term Loan A Facility”), and (iii) an uncommitted incremental facility subject to the satisfaction of certain financial and other conditions in the amount of up to (v) $50.0 million, plus (w) 1.0x of our consolidated EBITDA for the most recently completed four fiscal quarter period, plus (x) an additional amount at our discretion, so long as, on a pro forma basis at the time of incurrence, our secured leverage ratio does not exceed 1.50 to 1.00, plus (y) voluntary prepayments of the Revolving Credit Facility and Term Loan A Facility to the extent accompanied by concurrent reductions to the applicable Credit Facility (together with the Revolving Credit Facility and the Term Loan A Facility, collectively, the “Credit Facility”).customarycustomary events of default. As of March 31, 2021,2022, we were in compliance with all of the covenants of the Credit Agreement. See Note 10 to the condensed consolidated financial statements in Item 1 of this Quarterly Report and Note 10 to the consolidated financial statements in our Annual Report for additional details regarding the Credit Agreement.$30.8$38.0 million as of March 31, 20212022 and December 31, 2020, respectively,2021, against the Revolving Credit Facility.Three Months Ended March 31, 2022 March 31, 2021 Consolidated Statements of Cash Flows Data: Cash flows provided by operating activities $ 101,798 $ 95,799 Cash flows used in investing activities $ (14,764) $ (106,521) Cash flows provided by financing activities $ 2,102 $ 995,070 $95.8$101.8 million for the three months ended March 31, 2021.2022. Our net incomeloss of $76.3$26.3 million for the three months ended March 31, 20212022 was adjusted by non-cash charges of $66.4$137.4 million comprisingcomprised mainly of $40.5 million of stock-based compensation, $9.6 millionamortization of content assets, depreciation and amortization primarily on property28amortization of right of use assets of $6.5 million and amortization of content assets of $9.8 million.operating right-of-use assets. The changes in our operating assets and liabilities used cash of $46.9$9.3 million mainly from an increase in other non-current assets of $60.5 million due toinventory balances, an increase in content assets, a decrease in accounts payable of $18.9 million due to timing of payments, an increase in prepaid expenses of $19.0 million due to an increase in contract assets primarily drivenfrom revenue recognized from customers, payments made for operating lease liabilities, offset by theinflows from an increase in accounts payable and deferred revenue and decrease in accounts receivable. These changes are mainly due to overall growth of platform revenuein the business combined with the timing of billing which falls into a subsequent period, a decrease in operating lease liabilities of $12.4 million on account of contractual leasereceipts from customers and payments and a decrease in deferred revenue of $11.0 million due to the timing of revenue recognition. These outflows were offset by inflows of $29.1 millionvendors.an increase in accrued liabilities mainly due to an increase in payables to content publishers and payroll accruals, $32.6 million from a decrease in accounts receivable as a result of collections from higher revenue recorded in the last quarter of 2020 and $12.6 million from a decrease in inventory levels.Our operating activities provided cash of $45.9 million for the three months ended March 31, 2020. Our net loss of $54.6 million for the three months ended March 31, 2020 was adjusted by non-cash charges of $58.0 million comprising mainly of $30.4 million of stock-based compensation, $8.4 million of depreciation and amortization primarily on property and equipment and intangible assets, amortization of right of use assets of $9.2 million, amortization of content assets of $6.1 million and provision for doubtful accounts of $3.8 million. The changes in our operating assets and liabilities provided cash of $42.6 million comprised of inflows of $32.5 million from a decrease in accounts receivable as a result of collections from higher revenue recorded in the last quarter of 2019, $13.6 million from an increase in operating lease liabilities, $4.8 million from an increase in accrued liabilities due to timing of payments, increased developer payables and overall growth in the volume of business, $5.7 million from a decrease in inventory balances, $1.5 million from a decrease in other non-current assets, and $1.2 million from an increase in other long-term liabilities. These inflows were partially offset by cash outflows of $13.6 million from a decrease in accounts payable due to timing of payments and $2.0 million from a decrease in deferred revenue.20212022 included cash outflowoutflows of $106.5 million comprised of $102.8$14.8 million for the acquisition of businesses, mainly This Old House, and $3.7 million for purchasepurchases of property and equipment and expenditures on leasehold improvements.Our investing activities for the three months ended March 31, 2020 included cash outflow of $44.3 million comprised of $45.3 million for the purchase of property and equipment, expenditures on leasehold improvements related to expandingexpansion of our facilities and other capital investments partially offset by $1.1 million of cash receivedoffice facilities.proceeds from the resolution of purchase acquisition contingencies.$995.1$2.1 million for the three months ended March 31, 2021.2022. The cash was received mainly from proceeds from our at-the-market offering program amounting to $989.6 million net of issuance costs and proceeds from the exercise of employee stock options of $6.7$3.4 million. These inflows were offset by $1.3 million of repayments made on borrowings.Our financing activities provided cash of $70.8 million for the three months ended March 31, 2020. The cash was received mainlyproceeds from borrowings amounting to $69.3 million and proceeds from the exercise of employee stock options of $2.7 million. These inflows were offset by $1.3 million of repayments made on borrowings.Off-Balance Sheet ArrangementsDuring the periods presented, we did not have any off-balance sheet arrangements, as defined by applicable SEC rules and regulations.29future minimum payments under our noncancelablematerial cash requirements from known contractual obligations are as follows as of March 31, 2021 (in thousands):2022 consisted of:(1)•Principal payments related to our Term Loan A Facility that are included in our condensed consolidated balance sheets and the related periodic interest payments. For additional information regarding the terms of the debt and interest payable, see Note 10 to the consolidated financial statements in our Annual Report.Represents the principal amount of the Term Loan A Facility. For additional information regarding the terms of the debt and interest payable, see Note 10 to the condensed consolidated financial statements in Item 1 of this Quarterly Report on Form 10-Q.(2)Represents commitments•Commitments to purchase finished goods from our contract manufacturers and other inventory related items.(3)Represents future minimum lease payments under operating leases.(4)Represents commitments included in other non-cancelable arrangements like content licensing, advertising buys and other platform services.We rely on outsourced suppliers to manufacture, assemble and test our players and audio devices. Consistent with industry practices, we enter into firm, noncancelable,non-cancelable, and unconditional purchase commitments with our contract manufacturers to acquire products through a combination of purchase orders, supplier contracts, and open orders based on projected demand information. Our contract manufacturers source components and build our products based on these demand forecasts. Changes to projected demand or in the subsequent sales mix of our products may result in us being committed to purchase excess inventory to satisfy these commitments.commitment amounts in the tablecommitments discussed above are associated with agreements that are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the table above.ThereThere have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report.30Risk.Facility.Agreement. The primary objective of our investment policy is to preserve principal while maximizing income without significantly increasing risk. We do not believe that an increase or decrease in interest rates of 100 basis points would have a material effect on our operating results or financial condition. As of March 31, 2021,2022, borrowings under the Term Loan A Facility totaled $93.8$88.8 million with an effective interest rate of 2.02%3.4%. If the amount outstanding under our Term Loan A Facility remains at this level for an entire year and interest rates increased or decreased by 100 basis points, our annual interest expense would increase or decrease, respectively, by an additional $0.9 million.20212022 there were no material changes to our foreign currency exchange rate risk disclosures as set forth under the heading “Item 7A – Quantitative and Qualitative Disclosures About Market Risk,” in Part II of our Annual Report.Procedures.Report on Form 10-Q. Report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this quarterly report,Quarterly Report, our disclosure controls and procedures were, in design and operation, effective at a reasonable assurance level.fraud.fraud. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.20212022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.We are currently involvedmay in the future be involved in, legal proceedings, claims, and investigations in the ordinary course of our business, including claims for infringing patents, copyrights or other intellectual property rights related to our platform and products, or the content distributed through our platformis incorporated herein by us or third-party channel developers. Although the results of these proceedings, claims, and investigations cannot be predicted with certainty, we do not believe that the final outcome of any matters that we are currently involved in are reasonably likely to have a material adverse effect on our business, financial condition, or results of operations. Regardless of final outcomes, however, any such proceedings, claims, and investigations may nonetheless impose a significant burden on management and employees and may come with expensive attorney fees or unfavorable preliminary and interim rulings.reference. on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the condensed consolidated financial statements and the related notes. If any of the following risks actually occurs, our business, reputation, financial condition, results of operations, revenue, and future prospects could be seriously harmed. In addition, you should consider the interrelationship and compounding effects of two or more risks occurring simultaneously. Unless otherwise indicated, references to our business being harmed in these risk factors will include harm to our business, reputation, financial condition, results of operations, revenue, and future prospects. In that event, the market price of our Class A common stock could decline, and you could lose part or all of your investment. You should not interpret our disclosure of any of the following risks to imply that such risks have not already materialized. The risks facing our business have not changed substantively from those discussed in our Annual Report, on Form 10-K, filed with the SEC on February 26, 202118, 2022, except for those risks marked with an asterisk (*).•the highly competitive nature of the TV streaming industry that is rapidly evolving;•our ability to monetize our streaming platform;•our ability to attract advertisers and advertising agencies to our demand-side advertising platform;•our ability to develop relationships with TV brands and service operators;•our ability to establish and maintain relationships with important content publishers;•popular or new content publishers not publishing their content on our streaming platform;•maintaining an adequate supply of quality video ad inventory on our platform and selling the available supply;•content publishers electing not to participate in platform features that we develop;•irrelevant or unengaging advertising, marketing campaigns or other promotional advertising on our platform;•our ability to attract users to and generate revenue from The Roku Channel;•users signing up for offerings and services outside of our platform;•the evolution of our industry and the impact of many factors that our outside of our control;•changes in consumer viewing habits;•our and our Roku TV brand partners’ reliance on retail sales channels to sell products;•our ability to build a strong brand and maintain customer satisfaction and loyalty;•advertiser and/or advertising agency delayed payment or failure to pay;•maintaining adequate customer support levels;•our ability to manage streaming device and other product introductions and transitions;•our and our Roku TV brand partners’ reliance on contract manufacturers and limited manufacturing capabilities;•our ability to forecast manufacturing requirements and manage inventory;•our ability to obtain key components from sole source suppliers;•interoperability of our streaming devices with content publishers’ offerings, technologies and systems;•detecting hardware errors or software bugs in our products before they are released to users;•component manufacturing, design or other defects that render our devices permanently inoperable;•our ability to obtain necessary or desirable third-party technology licenses;
•our ability to obtain necessary or desirable third-party technology licenses;•our history of operating losses;•volatility of our quarterly operating results that could cause our stock price to decline;•our ability to manage our growth;•our ability to successfully expand our international operations;•seasonality of our business and its impact our revenue and gross profit;•attracting and retaining key personnel and managing succession;•maintaining systems that can support our growth, business arrangements and financial rules;•our ability to successfully complete acquisitions and investments and integrate acquired businesses;•our ability to comply with the terms of our outstanding credit facility;•our ability to secure funds to meet our financial obligations and support our planned business growth;•significant disruptions of information technology systems or data security breaches;•legal obligations and potential liability related to our users’ personal information;•our actual or perceived failure to adequately protect personal and confidential information;•disruptions in computer systems or other services that result in a degradation of our platform;•changes in how network operators manage data that travel across their networks;•litigation resulting in the loss of important intellectual property rights;•failure to protect or enforce our intellectual property or proprietary rights;•our use of open source software;•our agreement to indemnify certain of our partners if our technology is alleged to infringe on third-parties’ intellectual property rights;•the current and future impact of the COVID-19 pandemic on our business;•natural disasters or other catastrophic events;•enactment of or changes to government regulation or laws related to our business;•changes in general economic conditions, geopolitical conditions, and/or U.S. trade and sanctions policies that impact our business;•U.S. or international rules that permit ISPs to limit internet data consumption by users;•changes to current or future laws, regulations or government actions that impact our partners;•liability for content that is distributed through or advertising that is served through our platform;•our ability to maintain effective internal controls over financial reporting;•the impact of changes in accounting principles;•compliance with laws and regulations related to the collection of sales tax and payment of income tax;•changes to U.S. or foreign taxation laws or regulations;•regulatory inquiries, investigations and proceedings;ourOur Class A Common Stock•the dual class structure of our Class A common stock;•the volatility in the trading price of our Class A common stock;•potential dilution or a decline in our stock price caused by future sales or issuance of our capital stock or rights to purchase capital stock;•a decline in our stock prices caused by future sales by existing stockholders;•dependency on favorable securities and industry analyst reports;•the significant legal, accounting and other expenses associated with being a publicly-traded company;•the absence of dividends on our Class A or Class B common stock;•anti-takeover provisions in our charter; and•the limitations resulting from our selection of the Delaware Court of Chancery and the federal district courts of the United States as the exclusive forums for substantially all disputes between us and our stockholders.*Companiestraditional forms of advertising such as TV commercials, as well as digital advertising or website product placement, and have greater resources to devote to such efforts than we do.and many DVD and Blu-ray players, also incorporate TV streaming functionality. Similarly, some service operators, such as Comcast, offer TV streaming applications and devices as part of their cable service plans and can leverage their existing consumer bases, installation networks, broadband delivery networks, and name recognition to gain traction in the TV streaming market. If consumers of TV streaming content prefer alternative products to our streaming players and our partners'partners’ Roku TV models, we may not be able to achieve our expected growth in active accounts, streaming hours, revenue, gross profit or ARPU. HDR and unknown future developments may require further investments in the development of our players, Roku TV models, and our platform. We may not have sufficient resources to continue to make the investments needed to maintain our competitive position. In addition, most of our competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales, marketing, and other resources than us, which provide them with advantages in developing, marketing, or servicing new products and offerings. As a result, they may be able to respond more quickly to market demand, devote greater resources to the development, promotion, sales, and distribution of their products or their content, and influence market acceptance of their products better than we can. These competitors may also be able to adapt more quickly to new or emerging technologies or standards and may be able to deliver products and services at a lower cost. Increased competition could reduce our sales volume, revenue, and operating margins, increase our operating costs, harm our competitive position, and otherwise harm our business.In July 2018,introduced ouralso offer audio products, including Roku TV Wireless Speakers, designed specifically for use withStreambars, Roku TV models, in September 2019, we launched our Roku Smart Soundbarwireless speakers, and Roku Wireless Subwoofer and in September 2020, we launched our Roku Streambar.wireless subwoofers. As a result, of these developments, we may face additional competition from makers of TV audio speakers and soundbars, as well as makers of other TV peripheral devices. While sales of our audio products have not generated material amounts of revenue, if these products do not operate as designed or do not enhance the Roku TV or other viewing experience as we intend, our users’ overall viewing experience may be diminished, and this may impact the overall demand for Roku TV models or our other products.We also compete for video viewing hours with mobile platforms (phones and tablets), and users may prefer to view streaming content on such devices. Increased use we compete for revenue from advertising with other streaming platforms and services, including digital and social media platforms, as well as traditional media, such as radio, broadcast, cable and satellite TV, and satellite and internet radio. These competitors offer content and other advertising mediums that may be more attractive to advertisers than our streaming platform. These competitors are often very large and have more advertising experience and financial resources than we do, which may adversely affect our ability to compete for advertisers and may result in lower revenue and gross profit from advertising. If we are unable to increase our revenue from advertising by, among other things, continuing to improve our platform’s capabilities to further optimize and measure advertisers’ campaigns, increaseincreasing our advertising inventory, and expandexpanding our advertising sales team and programmatic capabilities, our business and our growth prospects may be harmed. We may not be able to compete effectively or adapt to any such changes or trends, which would harm our ability to grow our advertising revenue and would harm our business.linearlegacy TV, radio, and print.print, and to advertising through digital and social media platforms. The future growth of our business depends on the growth of OTT advertising and on advertisers increasing their spend on advertising on our platform. Although traditionallegacy TV advertisers have shown growing interest in OTT advertising, we cannot be certain that their interest will continue to increase or that they will not revert to traditionallegacy TV advertising, especially if our users no longer stream TV or significantly reduce the amount of TV they stream either as a result of lifting of stay-at-home orders, the endCOVID-19 pandemic waning, as a result of the COVID-19 pandemiclaunch of new hybrid broadcast standards (such as ATSC 3.0), or for other reasons. In addition, if we are unable to compete with digital and social media platforms to win business from advertisers and agencies who have traditionally advertised on these platforms, such as direct-to-consumer and small or medium-sized businesses, our ability to grow our business may be limited. If advertisers, or their agency relationships, do not perceive meaningful benefits of OTT advertising, the market may develop more slowly than we expect, which could adversely impact our operating results and our ability to grow our business.audience development campaigns that run across our streaming platformrelated services, and from content distribution services.services (such as subscription and transaction revenue shares, media and entertainment promotional spending, the sale of Premium Subscriptions, and the sale of branded channel buttons on remote controls). As such, we are seeking to expand the number of active accounts and increase the number of hours that are streamed across our platform in an effort to create additional platform revenue opportunities. As our user base grows and as we increase the amount of content offered and streamed across our platform, we must effectively monetize our expanding user base and streaming activity. The total number of streaming hours, however, does not correlate with platform revenue on a period-by-period basis, primarily because we do not monetize every hour streamed or every user on our platform. Moreover, streaming hours on our platform are measured whenever a player or a Roku TV is streaming content, whether a viewer is actively watching or not. For example, if a player is connected to a TV, and the viewer turns off the TV, steps away, or falls asleep and does not stop or pause the player, then the particular streaming channel may continue to play content for a period of time determined by the streaming channel. We believe that this also occurs across a wide variety of non-Roku streaming devices and other set-top boxes. Beginning in the third quarter of 2019 throughSince the first quarter of 2020, we updated theall Roku devices include a Roku OS with a feature that is designed to identify when content has been continuously streaming on a channel for an extended period of time without user interaction. This feature which we refer to as “Are you still watching,” periodically prompts the user to confirm that they are still watching the selected channel and closes the channel if the user does not respond affirmatively. We believe that the implementation of this feature across the Roku platform benefits us, our customers, channel partners and advertisers. Some of our leading channel partners, including Netflix, also have similar features within their channels. This Roku OS feature supplements these channel features.features, and we believe that it benefits us, our users, channel partners, and advertisers. This feature has not had and is not expected to have a material impact on our financial performance.channelchannels by allowing users to purchase additional content and streaming services within their channels. In addition,channels, for which we do not currently monetize content providedmay earn less revenue than activations on non-certified channels, which are not displayed inor through our channel store and must be added manually by the user, on our streaming platform. If our users spend most of their time within particular channels where we have limited or no ability to place advertisements or leverage user information, or our users opt out from our ability to collect data for use in providing more relevant advertisements, we may not be able to achieve our expected growth in platform revenue or gross profit. If we are unable to further monetize our streaming platform, our business may be harmed.35Further, while we have experienced, and expect to continue to experience, growth in our revenue from advertising, our efforts to monetize our streaming platform through the distribution of advertising-supported video on demand (“AVOD”) content are still developing and our advertising revenue may not grow as we expect. This means of monetization will require us to continue to attract advertising dollars to our streaming platform as well as deliver AVODad-supported content that appeals to users. Accordingly, there can be no assurance that we will be successful in monetizing our streaming platform through the distribution of ad-supported content.Ad Platformad platform or if we are not successful in running a demand-side advertising platform, our business may be harmed.In 2020, we announced the rebranding of theAd Platform, a demand-sidead platform, through which advertisers and advertising agencies can programmatically purchase and manage their OTT, desktop and mobile advertising campaigns. OneView leverages the demand-side platform (“DSP”) developed by dataxu, which we acquired in November 2019, and integrates the reach, inventory, and capabilities of our proprietary advertising products and services. The market for programmatic OTT ad buying is an emerging market, and our current and potential advertisers and advertising agencies may not shift to programmatic ad buying from other buying methods as quickly as we expect or at all. If the market for programmatic OTT ad buying deteriorates or develops more slowly than we expect, advertisers and advertising agencies may not use OneView or we may not attract prospective advertisers or advertising agencies to OneView, and our business could be harmed. In addition, we have limited experience running a DSPdemand-side platform, and if OneView does not have the functionality or services expected by advertisers or advertising agencies, we may not be able to attract their advertising spend to OneView, or our existing customers may not maintain or increase their spend on OneView. Moreover, our ownership of OneView may negatively impact the ability of OneView to purchase advertising on non-Roku platforms. If we fail to adapt to our rapidly changing industry or to our customerscustomers’ evolving needs, advertisers and advertising agencies will not adopt OneView, and our business may be harmed. We also may not be able to compete effectively with more established DSPsdemand-side platforms or be able to adapt to changes or trends in programmatic OTT advertising, which would harm our ability to grow our advertising revenue and harm our business. our relationships with TV brand partners in the United States and international markets and, to a lesser extent, service operators.partners and, to a lesser extent, service operators in both the United States and international markets. Our licensing arrangements are complex and time-consuming to negotiate and complete. Our current and potential partners include TV brands, cable and satellite companies and telecommunication providers.partners. We continue to invest in the growth and expansion of our Roku TV program both in the United States and Internationalinternational markets. Our licensing program for service operators has historically been primarily focused on international markets and has not been growing in scale in recent years, as we have shifted the focus of our international growth to the sale of Roku streaming players and Roku TV models.havedo not received,typically receive, nor do we typically expect to receive, license revenue from these arrangements, but we expect to incur expenses in connection with these commercial agreements. The primary economic benefits that we derive from these license arrangements have been and will likely continue to be indirect, primarily from growing our active accounts, increasing streaming hours, and generating content distribution and advertising-related revenuesrevenue on our platform. If these arrangements do not continue to result in increased active accounts and streaming hours, and if that growth does not in turn lead to successfully monetizing that increased user activity, our business may be harmed.or service operatorpartner could harm our results of operations, damage our reputation, increase pricing and promotional pressures from other partners and distribution channels, or increase our marketing costs. If we are not successful in maintaining existing and creating new relationships with any of these third parties, or if we encounter technological, content licensing, or other impediments to our development of these relationships, our ability to grow our business could be adversely impacted.362021,2022, the top three streaming services represented over 50% of all hours streamed in the period. If, for any reason, we cease distributing channels that have historically streamed a large percentage of the aggregate streaming hours on our platform, our streaming hours, active accounts, or streaming device sales may be adversely affected, and our business may be harmed.content;content, particularly as we launch new players, introduce new Roku TV models, are introduced, or we enter new markets, including international markets. If we are not successful in helping our content publishers launch and maintain streaming channels that attract and retain a significant number of users on our streaming platform or if we are not able to do so in a cost-effective manner, our business will be harmed. Our ability to successfully help content publishers maintain and expand their channel offerings on a cost-effective basis largely depends on our ability to:•effectively promote and market new and existing streaming channels;•minimize launch delays of new and updated streaming channels; and•minimize streaming platform downtime and other technical difficulties.serveshas historically served as a valuable source of video ad inventory for us to sell, wethere is no guarantee that it will continue to do so in the future. If The Roku Channel is unable to secure content that is appealing to our users and advertisers, or is unable to do so on terms that provide a sufficient supply of ad inventory at reasonable cost, our supply of video ad inventory will be negatively impacted. We are also dependent on our ability to monetize video ad inventory within other ad-supported channels on our streaming platform. We seek to obtain the ability to sell such inventory from the content publishers of such channels. We may fail to attract content publishers that generate a sufficient quantity or quality of ad-supported content hours on our streaming platform or fail to obtain access to a sufficient quantity and quality of ad inventory from the publishers of such content. Our access to video ad inventory in ad-supported streaming channels on our platform varies greatly among channels; accordingly,channels. Accordingly, we do not have access to alla significant portion of the video ad inventory on our platform. For certain channels, including YouTube’s ad-supported channel, we37 our cross-channel search feature, our integrated advertising framework or have imposed limits on our data gathering for usage within their channels. In addition, our streaming platform utilizes our proprietary Brightscript scripting language in order to allow our content publishers to develop and create channels on our streaming platform. If we introduce new features or utilize a new scripting language in the future, such a change may not comply with ourcertain content publishers'publishers’ certification requirements. In addition, our content publishers may find other languages, such as HTML5, more attractive to develop for and shift their resources to developing their channels on other platforms. If key content publishers do not find our streaming platform simple and attractive to develop channels for, do not value and participate in all of the features and functionality that our streaming platform offers, or determine that our software developer kit or new features of our platform do not meet their certification requirements, our business may be harmed.audience developmentmedia and entertainment promotional spending campaigns and other promotional advertising on our platform are not relevant or not engaging to our users, our growth in active accounts and streaming hours may be adversely impacted.advertisement, audience developmentadvertising and media and entertainment promotional spending campaigns and other promotional advertising to our users. Existing and prospective advertisers and content publishers may not be successful in serving ads and audience developmentmedia and entertainment promotional spending campaigns and sponsoring other promotional advertising that lead to and maintain user engagement. Those ads and campaigns may seem irrelevant, repetitive, or overly targeted and intrusive. We are continuously seeking to balance the objectives of our advertisers and content publishers with our desire to provide an optimal user experience, but we may not be successful in achieving a balance that continues to attract and retain users, advertisers, and content publishers. If we dothe advertising and media and entertainment promotional spending campaigns on our streaming platform are not introduce relevant advertisers, audience development campaigns and other promotional adverting or such advertisements, audience development campaigns and other promotional advertising are overly intrusive and impede the use of our streaming platform, our users may stop using our platform, which will harm our business.and/or generate significant revenue from advertising, and our users may not purchase Premium Subscriptions.*content as well as Premium Subscriptions, which allow our users to pay for ad-free content from various content publishers, all on one streaming channel.content. We have incurred, and will continue to incur, costs and expenses in connection with the development, expansion, and operation of The Roku Channel, which we monetize primarily through advertising. For example, in the first quarter of 2021, we acquired content rights, including rights to certain projects in development, from the mobile-first video distribution service known as Quibi, and announced that The Roku Channel willwould become the home of such content. In addition, we acquired the entities comprising the “ThisThis Old House”House business, which own and produce the “This Old House” and “Ask This Old House” TV programs and operate related business lines, to further the growth strategy and ad-supported content offerings in The Roku Channel. free, ad-supported content we make available on The Roku Channel, we will not have the opportunity to monetize The Roku Channel through revenue generated from advertising. In order to attractincluding(including, for example, the content that we acquired through the Quibi transaction described above,and This Old House transactions) is ultimately not appealing to our users and advertisers, usage of The Roku Channel may decline, and our business may be harmed.acquisition of theQuibi and This Old House businesstransactions and the launch of our advertising brand studio, we will beare producing content for distribution on The Roku Channel and other platforms. We have limited experience producing content, and we may not be successful in doing so in a cost-effective manner that is appealing to our users and advertisers and furthers38operate, regardless of our ability to sell Premium Subscriptions.operate. In addition, we distribute The Roku Channel on platforms other than our own streaming platform, and there can be no assurance that we will be successful in attracting a large number of users and/or generating significant revenue from advertising through the distribution of The Roku Channel on such other streaming platforms.platform.platform, including Premium Subscriptions on The Roku Channel, which allow our users to pay for content from various content publishers. If users do notreduce the degree to which they use our platform for these purchases or subscriptions for any reason, and instead increase the degree to which they pay for services directly with content publishers or by other means thatfor which we do not receive attribution, for, our business may be harmed.generally not always equivalent to the revenue we earn from activationssales of such additional services on ora stand-alone basis through our platform that we receive full attribution credit for. Furthermore, for Premium Subscriptions, we only earn revenue for subscription videoplatform. If users increase their spending on demand (“SVOD”) channels, including subscriptions to these servicessuch in-channel transactions at the expense of stand-alone purchases through The Roku Channel. Accordingly, if users activate subscriptions for SVOD channels, including channels available as Premium Subscriptions, other than on our platform, our business may be harmed.ourare outside of our control, which makes it difficult to evaluate our business and prospects.Changes in consumer viewing habits could harm our business.The manner in which consumers access streaming content is changing rapidly. As the technological infrastructure for internet access continues to improve and evolve, consumers will be presented with more opportunities to access video, music and games on-demand with interactive capabilities. Time spent on mobile devices is growing rapidly, in particular by young adults streaming content as well as content from cable or satellite providers available live or on-demand on mobile devices. In addition, personal computers, smart TVs, DVD players, Blu-ray players, gaming consoles and cable set-top boxes allow users to access streaming content. If other streaming or technology providers are able to respond and take advantage of changes in consumer viewing habits and technologies better than us, our business could be harmed.New entrants may enter the TV streaming market with unique service offerings or approaches to providing video. In addition, our competitors may enter into business combinations or alliances that strengthen their competitive positions. If new technologies render the TV streaming market obsolete or we are unable to successfully compete with current and new competitors and technologies, our business will be harmed.partners'partners’ Roku TV models are sold through traditional brick and mortar retailers, such as Best Buy, Target, and Walmart, including their online sales platforms, and online retailers such as Amazon. To a lesser extent, weWe also sell players directly through our website and internationally through distributors. For the quarter ended March 31, 2021,distributors and retailers such as Coppel in Mexico, Magazine Luiza in Brazil, and MediaMarkt in Germany. As we have only recently expanded to certain international73% of our player segment revenue. These three retailers collectively accounted for 69% and 72% of our player revenue for the quarter ended March 31, 2022 and for both of the years ended December 31, 20202021 and 2019, respectively. These2020. Our retailers and our international distributors also sell products offered by our competitors. We have no minimum purchase commitments or long-term contracts with any of these retailers or distributors. If one or several retailers or distributors were39partners'partners’ Roku TV models, choose not to prominently display those devices in their stores or on their websites, or close or severely limit access to their brick and mortar locations, because of shutdowns related to the ongoing COVID-19 pandemic, the volume of our streaming devices or our TV brand partners’ Roku TV models sold could decrease, which would harm our business. If any of our existing TV brandsbrand partners choose to work exclusively with, or divert a significant portion of their business with us to other operating system developers, this may impact our ability to license the Roku OS and our smart TV reference design to TV brands and our ability to continue to grow active accounts. Traditional retailers have limited shelf and end cap space in their stores and limited promotional budgets, and online retailers have limited prime website product placement space. Competition is intense for these resources, and a competitor with more extensive product lines, and stronger brand identity and greater marketing resources, such as Amazon or Google, possesses greater bargaining power with retailers. In addition, one of our online retailers, Amazon, sells its own competitive streaming devices and smart TVs, is able to market and promote these products more prominently on its website, and could refuse to offer or promote our devices on its website. Any reduction in our ability to place and promote our devices, or increased competition for available shelf or website placement, could require us to increase our marketing expenditures to maintain our product visibility or result in reduced visibility for our products, which may harm our business. In particular, the availability of product placement during peak retail periods, such as the holiday season, is critical to our revenue growth, and if we are unable to effectively sell our devices during these periods, our business would be harmed.time consumingtime-consuming and comprehensive endeavor and can be positively and negatively impacted by any number of factors. Certain factors, such as the quality or pricing of our players or our customer service, are within our control. Other factors, such as the quality and reliability of Roku TV models and the quality of the content that our content publishers provide, may be out of our control, yet users may nonetheless attribute those factors to us. Our competitors may be able to achieve and maintain brand awareness and market share more quickly and effectively than we can. Many of our competitors are larger companies and promotemay have greater resources to devote to the promotion of their brands through traditional forms of advertising, such as print media and TV commercials, and have substantial resources to devote to such efforts. Our competitors may also have greater resources to utilize digital advertising or website product placement more effectively than we can.placement. If we are unable to execute on building a strong brand, it may be difficult to differentiate our business and streaming platform from our competitors in the marketplace, therefore our ability to attract and retain users may be adversely affected and our business may be harmed.of the channels that we distribute have resulted in, and could in the future result in, negative publicity, cause harm to our reputation and brand, or subject us to claims and may harm our business.on our streaming platform or through our DSP.demand-side platform. If we are unable to collect or make adjustments to bills, we could incur credit losses, which could have a material adverse effect on our results of operations for the periods in which the write-offs occur. In the future, bad debt may exceed reserves for such contingencies, and our bad debt exposure may increase over time. Any increase in write-offs for bad40 to our users and licensees, and if we fail to provide adequate levels of customer support, we could lose users and TV brand partners or other licensees, which would harm our business. and licensees depend on our customer support organization to resolve any issues relating to our devices. A high level of support is critical for the successful marketing and sale of our devices. We currently outsource the majority of our customer support operation to a third-party customer support organization.organization which provides support to end users of our players and audio products. In addition, we train our TV brand partners and service operator licensees to provide first-level customer support to users of Roku TV models and co-branded players. If we do not effectively train, update, and manage our third-party customer support organization to assist our users and licensees, and if that support organization does not succeed in helping them quickly resolve issues or provide effective ongoing support, it could adversely affect our ability to sell our devices to users and harm our reputation with potential new users and our licensees.*2018,recent years, we introduced our Roku TV Wireless Speakers, designed specifically for use withStreambars, Roku TV models, in 2019 we introduced our Roku Smart Soundbarwireless speakers, and Roku Wireless Subwoofer, and in 2020 we launched our Roku Streambar.wireless subwoofers, among other products. Whether users will broadly adopt new streaming devices or other new products is not certain. Our future success will depend on our ability to develop new and competitively priced streaming devices and other new products and add new desirable content and features to our streaming platform. Moreover, we must introduce new streaming devices and other new products in a timely and cost-effective manner, and we must secure production orders for those products from our contract manufacturers. The development of new streaming devices and other new products is a highly complex process, and while our research and development efforts are aimed at solving increasingly complex problems, we do not expect that all of our projects will be successful. The successful development and introduction of new streaming devices and other new products depends on a number of factors, including:•the accuracy of our forecasts for market requirements beyond near term visibility;•our ability to anticipate and react to new technologies and evolving consumer trends;•our development, licensing or acquisition of new technologies;•our timely completion of new designs and development;•the ability of our contract manufacturers to cost-effectively manufacture our new products;•the availability of materials and key components used in manufacturing;•tariffs, trade, sanctions, and export restrictions by the U.S. or foreign governments, which could impact the pricing and availability of such devices and depress consumer demand, limit the ability of our contract manufacturers to obtain key parts, components, software, and technologies, and lead to shortages;•the ability of our contract manufacturers to produce quality products and minimize defects, manufacturing mishaps, and shipping delays; and•our ability to attract and retain world-class research and development personnel.smart soundbars, wireless subwoofers and our wireless speakers.audio products. Our contract manufacturers are vulnerable to:
to, among other issues:•capacity constraints;•reduced component availability;•production disruptions or delays, including from strikes, mechanical issues, quality control issues, natural disasters, and public health crises, such as the ongoing COVID-19 pandemic; and•the impact of U.S. or foreign tariffs, trade, or sanctions restrictions on components, finished goods, software, or other products.during the41quarter ended March 31,in 2021, high demand for consumer electronicsglobal supply chain disruptions led to increased component costs and information technology products created tight component supply conditions and logistical delaysshipping costs for our products. In addition, COVID-19products, which negatively affected our player gross margin. Global supply chain disruptions have continued in 2022, and recent increases in U.S. demand for imported goods have caused shipping delays from Asia with backlogs at ports of originationour player gross margin has been, and entry.domay not contain terms that protect us against development, manufacturing, and supply disruptions or risks. For example, such contracts may not obligate themour contract manufacturers to supply our players or other products in any specific quantity or at any specific price. In the eventIf our contract manufacturers are unable to fulfill our production requirements in a timely manner, if their costs increase because of inflationary pressures, U.S. or international tariffs, sanctions, export or import restrictions, or if they decide to terminate their relationship with us, our order fulfillment may be delayed or terminated, and we would have to attempt to identify, select, and qualify acceptable alternative contract manufacturers. Alternative contract manufacturers may not be available to us when needed or may not be in a position to satisfy our production requirements at commercially reasonable prices, to our quality and performance standards on a timely basis, or at all. Any significant interruption in manufacturing at our contract manufacturers for any reason could require us to reduce our supply of players or other products to our retailers and distributors, which in turn would reduce our revenue, or to incur higher freight costs than anticipated, which would negatively impact our player gross margin. In addition, our contract manufacturers’ facilities, and the facilities of our contract manufacturers’ suppliers, are located in Southeast Asia, the People’s Republic of China and Brazil andvarious geographic areas that may be subject to political, economic, labor, trade, public health, social, and legal uncertainties, thatincluding Taiwan, Vietnam, China, and Brazil, and such uncertainties may harm or disrupt our relationships with these parties.parties or their ability to perform. For example, if the current tensions between Taiwan and China escalate and impact the operations of our contract manufacturers and their Taiwanese suppliers, our supply chain and our business could be adversely affected. We believe that the international location of these facilities increases supply risk, including the risk of supply interruptions, tariffs, and trade restrictions on exports or imports. Furthermore, any manufacturing issues affecting the quality of our products, including players and audio products, could harm our business.If our contract manufacturers fail for any reason to continue manufacturing our players or other products in required volumes and at high quality levels, or at all, we would have to identify, select and qualify acceptable alternative contract manufacturers. Alternative contract manufacturers may not be available to us when needed, or at all, or may not be in a position to satisfy our production requirements at commercially reasonable prices, to our quality and performance standards, or at all. Any significant interruption in manufacturing at a contract manufacturer could require us to reduce our supply of players or other products to our retailers and distributors, which in turn would reduce our revenue, active account growth or streaming hour growth.Certain Roku TV brands do not have manufacturing capabilities and primarily depend upon contract manufacturers, and thetheyour Roku TV brand partners encounter problems with their internal operations or contract manufacturers or suppliers.*brands do notbrand partners have internal manufacturing capabilities and others primarily rely upon contract manufacturers to build the Roku TV models that they sell to retailers. Their contractRegardless of whether their manufacturing capabilities are internal or contracted, our Roku TV brand partners’ manufacturers may be vulnerable to capacity constraints and reduced component availability,availability; increases in U.S. tariffs on imports of Roku TV models,models; future possible changes in U.S. regulations on exports of U.S. technologies ortechnologies; U.S. restrictions on dealings with certain countries, parties, regions, or parties,imported inputs; foreign tariffs on U.S. parts or components for Roku TV models that are assembled outside of the U.S.,United States; and theirsupply chain disruptions and shipping delays. Their control over delivery schedules, manufacturing yields, and costs, particularly when components are in short supply, may be limited. For those Roku TV brand partnersor factory shutdownsand other manufacturing and supply problems (whether due to the ongoing COVID-19 pandemic, the current sustained high demand for consumer electronics and information technology products, andor other manufacturing and supply problemsreasons) could impair the retail distribution of their Roku TV models. A significant interruptionInterruptions in the supply of Roku TV models to retailers and distributors at times have affected, and could adversely affect in turn, reducethe future, our active accounts and streaming hours.supply riskrisks of excess and insufficient inventories under our contract manufacturing arrangements. For example, our contract manufacturers order materials and components in advance in an effort to meet our projected needs for our products. Lead times for the materials and components that our contract manufacturers order on our behalf through different component suppliers may vary significantly and depend on numerous factors outside of our control, including the specific supplier, contract terms, shipping and air freight, and market demand for a component at a given time.time, and trade and government relations. Lead times for certain key materials and components incorporated into our players or other products are currently lengthy requiringand may require our contract manufacturers to order materials and components severalmany months in42 that are unique to our products or build excess products, we could be required to pay for these excess components or products. In the past, we have agreed to reimburse our contract manufacturers for purchased components that were not used as a result of our decision to discontinue a certain model of player or the use of particular components. If we incur costs to cover excess supply commitments, this would harm our business.for(for example, during end-of-year holidays. Duringholidays). In the first quarter ended March 31, 2021, sustained high demand for consumer electronicsof 2022, increased shipping and information technology products created tight component supply conditions and logistical delays forcosts adversely impacted our products.player gross margin. If we fail to accurately forecast our manufacturing requirements, our business may be harmed.sourceobtain sufficient quantities of these components on a timely basis, due to fabrication capacity issues or other material supply constraints, we will not be able to deliver our playersproducts to our retailers and distributors.players. Our players and other products. For example, each of our players may utilize a specific system on chip or SoC,(or SoC), Wi-Fi silicon productsproduct, and Wi-Fi front-end modulesmodule, each of which may be available from various manufacturers, depending on the player,only a single manufacturer and for which we do not have a second source. Although this approach allows us to maximize playerproduct performance on lower cost hardware, reduce engineering development and qualification costs, and develop stronger relationships with our strategic suppliers, this also creates supply chain risk. These sole-source suppliers could be constrained by fabrication capacity issues or material supply issues, such as U.S. or foreign tariffs, war or other government or trade relations issues, other export or import restrictions on U.S. parts or components for finished playersproducts that are used in final assembly of their components or(or on the finished players themselves.products themselves), or shortages of key components. There is also the risk that the strategic supplier may stop producing such components, cease operations, or be acquired by or enter into exclusive arrangements with our competitors or other companies, put contract manufacturers on allocation because of the ongoing global semiconductor shortage, or become subject to U.S. or foreign sanctions or export control restrictions or penalties. Such suppliers also have experienced, and may also facecontinue to experience, production, shipping, or logistical constraints arising from the COVID-19 pandemic. Any such interruption or delay may forcepandemic and other macro headwinds, including inflationary pressures, geopolitical conflict, and supply chain disruptions. Such interruptions and delays have forced us to seek similar components from alternative sources, which mayhave not be available.always been available, and have caused us to delay product introductions and incur air freight expense. Switching from a sole-source supplier wouldmay require that we adapt our software, and redesign our playersproducts to accommodate new chips and components, and wouldmay require us to re-qualify our playersproducts with•supplier capacity constraints;•price increases;•timely delivery;•component quality; and•delays in, or the inability to execute on, a supplier roadmap for components and technologies.playersproducts could adversely affect our ability to meet scheduled playerproduct deliveries to our retailers and distributors, result in lost sales and higher expenses, and harm our business.weor may be required to increase our hardware costs, and our business will be harmed. We plan to continue to introduce new products regularly, and we have experienced that it takes time to optimize such products to function well with these offerings, technologies and systems. In addition, many of our largest content publishers have the right to test and certify our new products before we can publish43thosethe products of our licenseesTV brand partners are technically complex and have contained and may in the future contain undetected software bugs or hardware errors. These bugs and errors can manifest themselves in any number of ways in our devices or our streaming platform, including through diminished performance, security vulnerabilities, data quality in logs or interpretation of data, malfunctions, or even permanently disabled devices. Some errors in our devices may only be discovered after a device has been shipped and used by users and may in some cases only be detected under certain circumstances or after extended use. We also update the Roku OS and our software on a regular basis, and, despite our quality assurance processes, we could introduce bugs in the process of any such update. The introduction of a serious software bug could result in devices becoming permanently disabled. We offer a limited one-year warranty in the United States, and any suchalthough applicable law or our software updates could cause us to be responsible for issues with devices after this period of time. Any defects discovered in our devices after commercial release could result in loss of revenue or delay in revenue recognition, loss of customer goodwill and users, and increased service costs, any of which could harm our business, operating results, and financial condition. We could also face claims for product or information liability, tort or breach of warranty, or other violations of laws or regulations. In addition, our contracts with users contain provisions relating to warranty disclaimers and liability limitations, which may not be upheld. Defending a lawsuit, regardless of its merit, is costly and may divert management’s attention and adversely affect the market’s perception ofexpectand although we have achieved profitability in recent quarters, we may not be able to maintain or grow our profitability.*future and may never achieve or maintain profitability.*We began operations in 2002 andfuture. Although we have experienced annual net losses each year since inception.achieved profitability in recent quarters, we may not be able to maintain or grow our profitability. As of March 31, 2021,2022, we had an accumulated deficit of $256.1$116.3 million. We expect our operating expenses to increase in the future as we continue to expand our operations.operations and invest in growth and new areas. If our revenue and gross profit do not grow at a greater rate than our operating expenses, we willmay not be able to achievemaintain and maintaingrow our profitability. We expect our profitability to operate at or near break-even levelsfluctuate in the future for a number of reasons, including without limitation the other risks and uncertainties described herein. Additionally, we may encounter unforeseen operating or legal expenses, difficulties, complications, delays, and other factors that may result in losses in future periods. If our expenses exceed our revenue, we may never achieve or maintain profitability and our business may be harmed.•the entrance of new competitors or competitive products or services, whether by established or new companies;•our ability to retain and grow our active account base, increase engagement among new and existing users, and monetize our streaming platform;•our ability to maintain effective pricing practices, in response to the competitive markets in which we operate or other macroeconomic factors, such as inflation or increased taxes;•our revenue mix, which drives gross profit;•supply of advertising inventory on our advertising platform and advertiser demand for advertising inventory;•seasonal, cyclical or other shifts in revenue from advertising or player sales;•the timing of the launch of new or updated products, channels or features;•the addition or loss of popular content or channels;•the expense and availability of content to license for The Roku Channel;•the ability of retailers to anticipate consumer demand;•an increase in the manufacturing or component costs of our players or the manufacturing or component costs of our TV brand licensees for Roku TV models;•delays in delivery of our players or our partners’ Roku TV models, or disruptions in our or our licensees’ supply or distribution chains, including any disruptions caused by the COVID-19 pandemic, tariffs, or other trade restrictions or disruptions; and•an increase in costs associated with protecting our intellectual property, defending against third-party intellectual property infringement allegations or procuring rights to third-party intellectual property.revenue has a lower gross marginmargins compared to our platform segment (which generates revenue derived through our arrangements withfrom digital advertising sales and related services, content distribution billing,services, and licensing activities.arrangements). Gross margins on our players vary across player models and can change over time as a result of product transitions, pricing and configuration changes, component costs, player returns, and other cost fluctuations. In addition, our gross margin and operating margin percentages, as well as overall profitability, may be adversely impacted as a result of a shift in device, geographic, or sales channel mix, component cost increases, price competition, or the introduction of new streaming devices, including those that have higher cost structures with flat or reduced pricing. We have in the past and may in the future strategically reduce our player gross margin in an effort to increase the number of active accounts and grow our gross profit. As a result, our player segment revenue may not increase as rapidly as it has historically, or at all, and, unless we are able to continue to increase our platform revenue and grow the number of active accounts, we may be unable to grow gross profit and our business will be harmed. In the first quarter of 2022, our player gross margin was negative due to rising component and shipping costs. Though we do not believe that the cost constraints and supply chain issues are permanent, they may continue to impact us and are expected to cause player gross margin to be negative in the near term. If a reduction in gross margin does not result in an increase in our active accounts or an increase our platform revenue and gross profit, our financial results may suffer, and our business may be harmed.•manage a larger organization;•hire more employees, including engineers with relevant skills and experience;•expand internationally;
•expand internationally; a larger number of TV brand partners and service operators;platform.and operating overseas, in addition to the risks we face in the United States, we will beare subject to a variety of risks that could adversely affect our business, including:•differing regulatory requirements, including country-specific data privacy and security laws and regulations, consumer protection laws and regulations, tax laws, trade laws, labor regulations, tariffs, export quotas, U.S. and foreign sanctions, custom duties on cross-border movements of goods or data flows, extension of limits on TV advertising minutes to OTT advertising, local content requirements, data or data processing localization requirements, or other trade restrictions;•compliance with laws such as the Foreign Corrupt Practices Act, UK Bribery Act and other anti-corruption laws, U.S. or foreign export controls and sanctions, and local laws prohibiting corrupt payments to government officials;•compliance with various privacy, data transfer, data protection, accessibility, consumer protection and child protection laws in the European Union (“EU”) and other international markets that we operate in;•competition with other devices that consumers may use to stream TV or existing local traditional pay TV services and products, including those provided by incumbent pay TV service providers;•different or unique competitive pressures as a result of, among other things, the presence of local consumer electronics companies and the greater availability of free content on over-the-air channels in certain countries;•availability of reliable broadband connectivity and wide area networks in areas targeted for expansion;•challenges inherent in efficiently staffing and managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, compensation and benefits, and compliance programs;•difficulties in understanding and complying with local laws, regulations and customs in foreign jurisdictions;•differing legal and court systems, including limited or unfavorable intellectual property protection;•unstable political and economic conditions whatever the cause, including pandemics, impacts from the United Kingdom’s withdrawal from the EU (commonly referred to as “Brexit”), tariffs, trade wars, local or global recessions, or long-term environmental risks;•international political or social unrest or economic instability, including U.S.-China tensions, and other political, security, or economic tensions between countries in which we do business or which serve as sources for Roku products;•adverse tax consequences such as those related to changes in tax laws or tax rates or their interpretations could impact our judgment in determining our tax provision and effective tax rate;•the imposition of customs duties on cross-border data flows for streaming services, which are currently prohibited under the WTO’s e-commerce moratorium, but could be permitted if certain WTO Members46continue to oppose extension of the moratorium when it is considered at the WTO’s MC-12 Ministerial Meeting, which was postponed due to the COVID-19 pandemic and is scheduled to take place in November 2021;•digital services taxes, which have been imposed or are under consideration by several European and other countries, which would lead to taxes on certain digital services even though the providers would not be subject to tax under existing international tax rules and treaties;•the COVID-19 pandemic or any other pandemics or epidemics could result in decreased economic activity in certain markets, decreased use of our products or platform, or in our decreased ability to import, export, ship, or sell our products to supply such services to existing or new customers in international markets;•fluctuations in currency exchange rates could impact our revenue and expenses of our international operations and expose us to foreign currency exchange rate risk;•restrictions on the repatriation of earnings from certain jurisdictions;•future possible changes in U.S. regulations on exports of U.S. technologies or dealings with certain countries or parties, including expanding export control and sanctions restrictions on China and Hong Kong; and•working capital constraints.*a significant percentage of our player sales through retailers in preparation for the fourth quarter are pursuant to committed sales agreements with retailers for whichholiday season, we recognize significant discounts in the average selling prices in the third quarterof our player sales through retailers in an effort to grow our active accounts, which willtypically reduce our player gross margin.couldhave in the past, and may in the future, adversely affect our or our distributors’ ability to timely deliver players and co-branded the holiday season.seasons. A substantial portion of our expenses are personnel related, includingpersonnel-related (including salaries, stock-based compensation, and benefits,benefits) and facilities relatedfacilities-related, none of which are seasonal in nature. Accordingly, in the event of a revenue shortfall, we would be unable to mitigate the negative impact on gross profit and operating margins, at least in the short term, and our business would be harmed. for personnel, particularly in the San Francisco Bay Area where our headquarters is located, to attract top talent, we have had to offer, and believe we will need to continue to offer, competitive compensation packages before we can validate the productivity of those employees. In addition, the recent move by companies to offer a remote or hybrid work environment may increase the competition for such employees from employers outside of our traditional office locations. To retain employees, we also may need to increase our employee compensation levels in response to competition. The loss of employees or the inability to hire additional skilled employees is necessary to support our growth could result in significant47could also result in errors in our financial and other reporting.*or the Agentas administrative agent and collateral agent (the “Agent”), providing for a (i) a four-year revolving credit facility in the aggregate principal amount of up to $100.0 million (the “Revolving Credit Facility”), (ii) a four-year delayed draw term loan A facility in the aggregate principal amount of up to $100.0 million (the “Term Loan A Facility”), and (iii) an uncommitted incremental facility subject to certain conditions (collectively, the “Credit Agreement”).conditions. The Credit Agreement contains a number of affirmative and negative covenants, which may restrict our current and future operations, particularly our ability to respond to certain changes in our business or industry or take future actions. The Credit Agreement also contains a financial covenant requiring us to maintain a minimum adjusted quick ratio of at least 1.00 to 1.00, tested as of the last day of any fiscal quarter on the basis of the prior period of our four consecutive fiscal quarters. Pursuant to the Credit Agreement, we granted the Agent a security interest in substantially all of our and our subsidiary guarantors’ assets. In November 2019, we borrowed an aggregate principal amount of $100.0 million from the Term Loan A Facility. We also had outstanding letters of credit as of March 31, 2022 totaling $38.0 million against the Revolving Credit Facility. See the section titled “Management’s Discussion and48Facilities.”In November 2019, we borrowed $100.0 million aggregate principal amount pursuant to the Term Loan A Facility andFacilities” elsewhere in March 2020, we borrowed $69.3 million aggregate principal amount of revolving loans pursuant to the Revolving Credit Facility. In May 2020, we entered into an Equity Distribution Agreement with Morgan Stanley & Co. LLC and Citigroup Global Markets Inc., as sales agents (the “2020 Equity Distribution Agreement”), pursuant to which we sold 4.0 million shares of our Class A common stock at an average selling price of $126.01 per share, for aggregate gross proceeds of $504.0 million, a portion of which was used to repay the $69.3 million outstanding under our Revolving Credit Facility. In March 2021, we entered into an Equity Distribution Agreement with Morgan Stanley & Co. LLC, Citigroup Global Markets Inc. and Evercore Group L.L.C., as sales agents (the “2021 Equity Distribution Agreement”), pursuant to which we sold 2.6 million shares of our Class A common stock at an average selling price of $379.26, for aggregate gross proceeds of $1,000.0 million. We also have outstanding letters of credit as of March 31, 2021 totaling $30.8 million against the Revolving Credit Facility.2021,2022, we were in compliance with all of the financial covenants of the Credit Agreement. However, if we fail to comply with the covenants, make payments as specified in the Credit Agreement, or undergo any other event of default contained in the Credit Agreement, the Agent could declare an event of default, which would give it the right to terminate the commitments to provide additional loans and declare any borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, the Agent would have the right to proceed against the assets we provided as collateral pursuant to the Credit Agreement. If the outstanding debt under the Credit Agreement is accelerated, we may not have sufficient cash or be able to sell sufficient assets to repay it, which would harm our business and financial condition.Revolving CreditTerm Loan A Facility, we chose a variable interest rate based on the one-month U.S. dollar London Interbank Offered Rate (“LIBOR”) as the benchmark for establishing the applicable interest rate. If we borrow pursuant to the Revolving Credit Facility, we are permitted to choose LIBOR as the benchmark for establishing the applicable interest rate as well. LIBOR, which is currently calculated and published for various currencies and periods by the benchmark’s administrator, ICE Benchmark Administration Limited (“IBA”), which is regulated for such purposes byin the United Kingdom’s Financial Conduct Authority. On March 5, 2021, theprocess of being phased out. The IBA confirmed that it would cease thehas ceased publication of the one-week and two-month U.S. dollar LIBOR settings, immediately following the LIBORand intends to cease publication on December 31, 2021, and theof all other U.S. dollar LIBOR settings (overnight and 12 months) immediately following(including the LIBOR publication onone-month setting) after June 30, 2023.TheAlthough our Credit Agreement will expire in February 2023 (before the cessation of the publication of the one-month U.S. dollar LIBOR setting), the consequences of the LIBOR developments cannot be entirely predicted and could have an adverse impact on the value of our LIBOR-linked financial obligations, such as an increase in the cost of our Credit Agreement indebtedness.49 increasingly dependent on information technology systems and infrastructure to operate our business. In the ordinary course of our business, we collect, store, process, and transmit large amounts of sensitive corporate, personal, and other information, including intellectual property, proprietary business information, user payment card information, other user information, employee information, and other confidential information. It is critical that we do so in a secure manner to maintain the confidentiality, integrity, and availability of such information. Our obligations under applicable laws, regulations, contracts, industry standards, self-certifications, and other documentation may include maintaining the confidentiality, integrity, and availability of personal information in our possession or control, maintaining reasonable and appropriate security safeguards as part of an information security program, and limits on the use and/or cross-border transfer of such personal information. These obligations create potential legal liability to regulators, our business partners, our users, and other relevant stakeholders and also impact the attractiveness of our subscription service to existing and potential users.AttacksFor example, despite our efforts to secure our information technology systems and the data contained in those systems, including our efforts to educate or train our employees, we and our third-party vendors have experienced, and remain vulnerable to, data security incidents, including data breaches, phishing attacks, and improper employee access of this natureconfidential data. Malicious attacks are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives (including, butFor example, despite our efforts to secure ourThe Russian invasion of Ukraine and resulting geopolitical conflict also have increased the risk of malicious attacks on information technology systems andoperations globally, including for companies headquartered in the data contained in those systems, including any efforts to educate or trainUnited States.we remain vulnerable to phishing attacks.and may in the future, implement remote workingimplemented work from home protocols and offer work-issued devices to employees, the actions of our employees while working remotelyfrom home may have a greater effect on the security of our systems and the data we process, including by increasing the risk of compromise to our systems, intellectual property, or data arising from employees’ combined personal and private use of devices, accessing our systems or data using wireless networks that we do not control, or the ability to transmit or store company-controlled data outside of our secured network. These risks have been heightened by the dramatic increase in the numbers of our employees who have been and are continuing to work from home as a result of government guidelines and internal policies adopted in response to the COVID-19 pandemic. could include the deployment of harmful malware, ransomware attacks, denial-of-service attacks, social engineering, and other means to affect service reliability and threaten the confidentiality, integrity, and availability of information. Some of these external threats may be amplified by the nature of our third-party web hosting, cloud computing, or network-dependent streaming services or suppliers. Our systems regularly experience directed attacks on at least a periodic basis that are intended to interrupt our operations; interrupt our users’, content publishers’, and advertisers’ ability to access our platform; extract money from us; and/or view or obtain our data (including without limitation user or employee personal information or proprietary information) or intellectual property. Although we have implemented certain systems, processes, and safeguards intended to protect our information technology systems and data from such threats and mitigate risks to our systems and data, weWe cannot be certain that threat actors will not have a material impact on our systems or services in the future. Our safeguards intended to prevent or mitigate certain threats may not be sufficient to protect our information50landscape.landscape as well as the impact that third-party vendors and third-party products may have on our cybersecurity. Recent developments in the threat landscape include an increased number of cyber extortion and ransomware attacks, with increases in the amount of ransom demands and the sophistication and variety of ransomware techniques and methodology. Ransomware or other cybersecurity attacks affecting our third-party vendors also may impact our ability to operate our business, such as when our information technology or human resources vendors experience an outage of their systems, which renders services to downstream customers unavailable. Additionally, our third-party vendors or business partners’ information technology systems, or hardware/software provided by such third parties for use in our information technology systems, may be vulnerable to similar threats and our business could be affected by those or similar third-party relationships.Our platform also incorporates licensed software from third parties, including open-source software, and we may also be vulnerable to attacks that focus on such third-party software. Any attempts by threat actors to disrupt our platform, our streaming devices, website, computer systems, or our mobile apps, if successful, could harm our business, subject us to liability, be expensive to remedy, cause harm to our systems and operations, and damage our reputation. Efforts to prevent threat actors from entering our computer systems or exploiting vulnerabilities in our devices are expensive to implement and may not be effective in detecting or preventing intrusion or vulnerabilities. Such unauthorized access to our data could damage our reputation and our business and could expose us to the risk of contractual damages, litigation, and regulatory fines and penalties that could harm our business. The risk of harm to our business caused by security incidents may also increase as we expand our product and service offerings and as we enter into new markets. Implementing, maintaining, and updating security safeguards requires substantial resources now and will likely be an increasing and substantial cost in the future.and/or commercial partners’ information technology systems or other similar data security incidents could adversely affect our business operations and/or result in the loss, misappropriation, and/or unauthorized access, use or disclosure of, or the prevention of access to, sensitive or personal information, which could harm our business. In addition, information technology system disruptions, whether from attacks on our technology environment or from computer viruses, natural disasters, terrorism, war, foreign invasions, and telecommunicationtelecommunications and electrical failures, could result in a material disruption of our product development and our business operations.and/or state breach notification laws and foreign law equivalents, subject us to time consuming, distracting, and expensive litigation, regulatory investigation and oversight, mandatory corrective action, require us to verify the correctness of database contents, or otherwise subject us to liability under laws, regulations, and contractual obligations, including those that protect the privacy and security of personal information. This could result in increased costs to us and result in significant legal and financial exposure and/or reputational harm. For example, in the wake of a data breach involving payment card data, we may be subject to substantial penalties and related enforcement for failure to adhere to the technical or operational security requirements of the Payment Card Industry (“PCI”) Data Security Standards (“DSS”) imposed by the PCI Council to protect cardholder data. Penalties arising from PCI DSS enforcement are inherently uncertain as penalties may be imposed by various entities within the payment card processing chain without regard to any statutory or universally mandated framework. Such enforcement could threaten our relationship with our banks, card brands we do business with, and our third-party payment processors.or our vendors, or our business partners to comply with our privacy, confidentiality, or data security-related legal or other obligations to third parties, or any further security incidents or other unauthorized access events that result in the unauthorized access, release, or transfer of sensitive information which(which could include personal information,information), may result in governmental investigations, enforcement actions, regulatory fines, litigation, or51including(including existing or potential users’ perceiving our platform, system, or networks as less desirabledesirable) or we could be subject to claims by third parties that we have breached our privacy- or confidentiality-related obligations, which could materially and adversely affect our business and prospects. There can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages. Moreover, data security incidents and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. While we have implemented security measures intended to protect our information technology systems and infrastructure, as well as the personal and proprietary information that we possess or control, there can be no assurance that such measures will successfully prevent service interruptions or further security incidents. Data protection laws around the world often require “reasonable”, “appropriate”“reasonable,” “appropriate,” or “adequate” technical and organizational security measures, and the interpretation and application of those laws are often uncertain and evolving, and there can be no assurance that our security measures will be deemed adequate, appropriate, or reasonable by a regulator or court. Moreover, even security measures that are deemed appropriate, reasonable, and/or in accordance with applicable legal requirements may not be able to protect the information we maintain. In addition to potential fines, we could be subject to mandatory corrective action due to a data security incident, which could adversely affect our business operations and result in substantial costs for years to come.the personal and confidential information, of our users, which creates legal obligations and exposes us to potential liability.*a variety of individuals including our users (and their devices), employees, and their devices,partners, and we rely on third partythird-party service providers to collect, process, transmit, and store personal or confidential information of our users including(including our users’ payment card data.data), employees, and partners. We collect such information from individuals located both in the United States and abroad and may store or process such information outside the country in which it was collected. Further, we, and our service providers as well asand our business partners use tracking technologies, including cookies, device identifiers, and related technologies, to help us manage and track our users’ interactions with our platform, devices, website, and partners’ content to deliver relevant advertising and personalized content for ourselves and on behalf of our partners on our devices.users’users having the ability to refuse consent to or opt out from our, our service providersproviders’, or our advertising partners’ collection and use of this data, restrictions imposed by advertisers, content publishers, licensors, and service providers, changes in technology, and developments in laws, regulations, and industry standards. For example, certain EUEuropean Union (“EU”) laws and regulations prohibit access to or storage of information on a user’s device (such as cookies and similar technologies that we use for advertising) that is not “strictly necessary” to provide a user-requested service or used for the “sole purpose” of a transmission unless the user has provided unambiguous, affirmative consent, and users may choose not to provide this consent to collection of information which is used for advertising purposes. Additionally, certain device manufacturers or operating system providers may restrict the deployment of cookies and similar technologies, or otherwise restrict the collection of personal information through these or other tools, via our applications. Any restrictions on our ability to collect or use data could harm our ability to grow our revenue, particularly our platform revenue which depends on engaging the relevant recipients of advertising campaigns.including(including the U.S. Federal Trade Commission (“FTC”), state attorneys general, the European Commission, European and EuropeanUK data protection authorities, and the Brazilian national data protection authority), have increasingly scrutinized privacy issues with respect to devices that identify or are identifiable to a person (or household or device) and personal information collected through the internet, and we expect such scrutiny to continue to increase. The United States,U.S. federal government, U.S. states, and foreign governments have enacted and(or are consideringconsidering) laws and regulations that could significantly restrict industry participants’ ability to collect, use, and share personal information, such as by regulating the level of consumer notice and consent required before a company can place cookies or other tracking technologies. For example, the EU General Data Protection Regulation (“GDPR”) became effective in May 2018 and imposes detailed requirements related to the collection, storage, and use of personal information related to people located in the EU or(or which is processed in the context of EU operationsoperations) and places new data protection obligations and restrictions on organizations, and may require us to make further changes to our policies and procedures in the future beyond what we have already done.52Further, In addition, in the wake of Brexit, there has been uncertainty with regard to the regulation of data protection in the United Kingdom. AlthoughKingdom’s withdrawal from the EU (“Brexit”), the United Kingdom enactedhas adopted a Data Protection Act in May 2018,framework similar to the GDPR. The EU has recently confirmed that the UK data protection framework as being “adequate” to receive EU personal data. We are monitoring recent developments regarding amendments to the UK data protection framework and the EUimpact this may declare the United Kingdom’s privacy laws as adequate for receiving personal information from the EU, a level of uncertainty remains regarding how data transfers to and from the United Kingdom will be regulated after Brexit. have on our business.EUR 20 million or 4% of the annual global revenue of a noncompliant company, whichever is greater, as well as data processing restrictions, could be imposed for violation of certain of the GDPR’s requirements. Other countries have also proposed or passed legislation with obligations similarData protection laws continue to thatproliferate throughout the world and such laws likely apply to our business. For example, Brazil’s General Data Protection Law (“LGPD”) came into effect in August 2020. The LGPD bears many substantive similarities to the GDPR such as extra-territorial reach, enhanced privacy rights for individuals, data transfer restrictions, and mandatory breach notification obligations. It carries penalties of the GDPR. such as California and Nevada having enacted broad-based data privacy and protection legislation and with states and the federal government continuing to consider additional data privacy and protection legislation. The potential effects of this legislation are far-reaching and may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply. EffectiveFor example, effective October 2019, Nevada amended its existing Security of Personal Information Law (“SPI Law”) to require, among other things, that certain businesses provide a designated request address to intake requests from consumers to opt out of the sale of their personal data. TheEffective January 2020, the California Consumer Privacy Act (“CCPA”) went into effect in January 2020 and gives California residents certain rights with respect to their personal information, such as rights to access, and require deletion of, their personal information, opt out of the sale of their personal information, and receive detailed information about how their personal information is used. The CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches that may increase data breach litigation. The CCPA was amended and the California Office of the Attorney General published final regulations to implement portions of the CCPA. In November 2020, the California Privacy Rights Act (“CPRA”) was passed into law and goes into effect, which becomes effective on January 1, 2023 (with a ‘look-back’“look-back” to January 1, 2022). The CPRA, builds on the CCPA and among other things, requires the establishment of a dedicated agency to regulate consumer privacy issues. In March 2021,recent years, Virginia, enacted the Consumer Data Protection Act (“VCDPA”), which goes into effect January 1, 2023. The VCDPA introducesColorado, and Utah have adopted laws introducing new privacy obligations for which we may need to take additional steps to comply.Data protection laws continue to proliferate throughout the world and such laws likely apply to our business. For example, Brazil’s General Data Protection Law (“LGPD”) came into effect in August 2020. The LGPD bears many substantive similarities to the GDPR such as extra-territorial reach, enhanced privacy rights for individuals, data transfer restrictions and mandatory breach notification obligations. It carries penalties of up to 2% of a company’s Brazilian revenue.Applicable data privacylawsbreach involving, or other unauthorized access to or acquisition or disclosure of, certain personal information and impose additional obligations on companies. Additionally, our agreements with certain users or partners may also obligaterequire us to employnotify them in the event of a security measures thatbreach. Such statutory and contractual disclosures are appropriatecostly, could lead to negative publicity, may cause our users to lose confidence in the natureeffectiveness of the data we collect and process and, among other factors, the risks attendant to our data processing activities in order to protect personal information from unauthorized access or disclosure, or accidental or unlawful destruction, loss, or alteration. We have implemented security measures that we believe are appropriate, but a regulator could deem our security measures, not to be appropriate given the lack of prescriptive measures in certain data protection laws. Given the evolving nature of security threats and evolving safeguards, we cannot be sure that our chosen safeguards will protect against security threats to our business including the personal information that we process. However, even security measures that are appropriate, reasonable, and/or in accordance with applicable legal requirements may not be able to fully protect our information technology systems and the data contained in those systems, or our data that is contained in third parties’ systems. Moreover, certain data protection laws impose on us responsibility for our employees and third parties that assist with aspects of our data processing. Our employees’ or third parties’ intentional, unintentional, or inadvertent actions may increase our vulnerability or exposerequire us to expend significant capital and other resources to respond to or alleviate problems caused by the actual or perceived security threats, such as phishing attacks,breach. Compliance with these obligations could delay or impede the development of new products and we may remain responsible for successful access, acquisition or other disclosure of our data despite the quality and legal sufficiency of our security measures.these data transfer mechanisms,transfers to the United States, the resolution of which may adversely affect our ability to transfer personal information from the EEA to the United States. On July 16, 2020, the European Court of Justice (the highest EU Court) ruled the EU-USEU-U.S. Privacy Shield to be an invalid data transfer mechanism, confirmed that the Model Clauses remain valid, and left unaddressed some issues regarding supplementary measures that53We are currently awaiting regulatory guidanceOn March 25, 2022, the European Commission and U.S. government announced that an agreement in principle on a new framework for data transfers from EU Data Protection Authoritiesthe EEA to the United States had been reached, and that this new framework should address the US Departmentconcerns raised in the 2020 European Court of Commerce on the impact of this ruling on broader international data transfer compliance for companies, including finalized guidance on specific supplementary measures that all companies wouldJustice decision. Additional steps will need to be requiredtaken to implement this framework, however, and we are not yet able to predict when or whether it will provide a consistent mechanism for our data transfers between the two jurisdictions. In addition, in addition to2021, the European Commission published updated versions of the Model Clauses. ThisClauses, which must be incorporated into new and existing agreements within prescribed timeframes in order to continue to lawfully transfer personal information outside of the EEA. The United Kingdom published final versions of its own Model Clauses in February 2022. Updating agreements to incorporate these new Model Clauses for the EEA and United Kingdom may involve changes that require significant time and resources to implement, including through adjusting our operations, conducting requisite data transfer assessments, and revising our contracts. Our ability to continue to transfer personal information outside of the EU may become significantly more costly and may subject us to increased scrutiny and liability under the GDPR, and we may experience operating disruptions if we are unable to conduct these transfers in the future. In addition, cloud service providers upon which our services depend are experiencing heightened scrutiny from EU regulators, which may lead to significant shifts or unavailability of cloud services to transfer personal information outside the EU, which may significantly impact our costs or ability to operate. ‘data localization’“data localization” laws requiring that user data regarding users in their countryrespective countries be maintained, stores, and/stored, or processed in their country.respective countries. Maintaining local data centers in individual countries could increase our operating costs significantly. We expect that, in addition to the business“business as usualusual” costs of compliance, the evolving regulatory interpretation and enforcement of laws such as the GDPR and CCPA, as well as other domestic and foreign data protection laws, will lead to increased operational and compliance costs and will require us to continually monitor and, where necessary, make changes to our operations, policies, and procedures. Any failure or perceived failure to comply with privacy-related legal obligations, or any compromise of security of user data, may result in governmental enforcement actions, litigation, contractual indemnityindemnities, or public statements against us by consumer advocacy groups or others. In addition to potential liability, these events could harm our business.and/orand other confidential information. Although we endeavor to comply with our published policies, certifications, and documentation, we may at times fail to do so or may be perceived to have failed to do so. Moreover, despite our efforts, we may not be successful in achieving compliance if our employees, representatives, agents, vendors, or vendorsother third parties fail to comply with our published policies, certifications, andOur actual or perceived failure to adequately protect personal information and confidential information that we (or our service providers or business partners) collect, store or process could trigger contractual and legal obligations, harm our reputation, subject us to liability and otherwise adversely affect our business including our financial results.In the ordinary course of our business, we collect, store and process personal information (including payment card information) and/or other confidential information of our employees, our partners, and our users. We use third-party service providers and subprocessors to help us deliver our services. These vendors may store or process personal information, payment card information and/or other confidential information of our employees, our partners, or our users. We collect such information from individuals located both in the United States and abroad and may store or process such information outside the country in which it was collected.A variety of state, national, and foreign laws and regulations apply to the collection, use, retention, protection, disclosure, security, transfer, cross-border transfer, localization, and other processing of personal information. These privacy and data protection-related laws and regulations are evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations. In addition, each state and the District of Columbia, Guam, Puerto Rico, the U.S. Virgin Islands, EU member states, and the United Kingdom, as well as some other foreign nations, have passed laws requiring notification to regulatory authorities, to affected users, and/or54others within a specific timeframe when there has been a security breach involving certain personal information as well as impose additional obligations for companies. Additionally, our agreements with certain users or partners may require us to notify them in the event of a security breach. Such statutory and contractual disclosures are costly, could lead to negative publicity, may cause our users to lose confidence in the effectiveness of our security measures and require us to expend significant capital and other resources to respond to and/or alleviate problems caused by the actual or perceived security breach. Compliance with these obligations could delay or impede the development of new products and may cause reputational harm.Litigation resulting from security breaches may adversely affect our business. Unauthorized access to our platform, systems, networks, or physical facilities could result in litigation with our users or other relevant stakeholders. These proceedings could force us to spend money in defense or settlement, divert management’s time and attention, increase our costs of doing business, and/or adversely affect our reputation. We could be required to fundamentally change our business activities and practices or modify our products and/or platform capabilities in response to such litigation, which could have an adverse effect on our business. Any actual or perceived inability to adequately protect the privacy of individuals’ information in our possession, custody or control may render our products or services less desirable and could harm our reputation and business. Any costs incurred as a result of this potential liability could harm our business.users.users or otherwise disrupt our business. We utilize computer systems located either in our facilities or those of third-party server hosting providers and third-party internet-based or cloud computing services. Although we generally enter into service level agreements with these parties, we exercise no control over their operations, which makes us vulnerable to any errors, interruptions, or delays that they may experience. In the future, we may transition additional features of our services from our managed hosting systems to cloud computing services, which may require significant expenditures and engineering resources. If we are unable to manage such a transition effectively, we may experience a loss or degradation in services, operational delays, andor inefficiencies until the transition is complete. Upon the expiration or termination of any of our agreements with third-party vendors, we may not be able to replace their services in a timely manner or on terms and conditions, including service levels and cost, that are favorable to us, and a transition from one vendor to another vendor could subject us to operational delays and inefficiencies until the transition is complete. In addition, fires, floods, earthquakes, wars, foreign invasions, terrorist activity, power losses, telecommunications failures, break-ins, and similar events could damage these systems and hardware or cause them to fail completely. As we do not maintain entirely redundant systems, a disrupting event could result in prolonged downtime of our operations, products, or services and could adversely affect our business. Any disruption in the services provided by these vendors could have adverse impacts on our business reputation, customer relations, and operating results.providerproviders do not effectively address capacity constraints, upgrade or patch systems as needed, and continually develop technology and network architecture to accommodate increasingly complex services and functions, increasing numbers of users, and actual and anticipated changes in technology, our business may be harmed.low-cost, high-speed access to the internet at reasonable cost, which relies in part on theinternet service network operators’ continuing willingness to upgrade and maintain their equipment as needed to sustain a robust internet infrastructure as well as their continued willingness to preserve the open and interconnected nature of the internet. We exercise no control over network operators, which makes us vulnerable to any errors, interruptionsdisruptions, or delays in their operations.operations, as well as any decision they may make to prioritize the delivery of certain network traffic at the expense of other traffic. Any material disruption or degradation in internet services could harm our business.55past, internet service providers have attempted touncertainty around these laws and the rules that implement them, including changing interpretations, amendments, or repeal, coupled with potentiallythrottling. To the extent network operators were to create tiers of internet access service and either charge us for access to these tiers or prohibitthrottling, that could impede our content offerings from being available on some or all of these tiers,growth, result in a decline in our quality of service, could decline, our operating expenses could increase andcause us to incur additional expense, or otherwise impair our ability to attract and retain users, could be impaired, eachall of which wouldcould harm our business.provide theseoffer consumers with multichannel video programming.programming, and some network operators also own streaming services. These network operators have an incentive to use their network infrastructure in a manner adverse to the continued growth and success of other companies seeking to distribute similar video programming. To the extent that network operators are able to provide preferential treatment to their own data and content, as opposed to ours, our business could be harmed.toto: pay damages, potentially including treble damages and attorneys’ fees, if we are found to have willfully infringed a party’s intellectual property; cease making, licensing, or using technologies that are alleged to infringe or misappropriate the intellectual property of others; expend additional development resources to redesign our products; enter into potentially unfavorable royalty or license agreements in order to obtain the right to use necessary technologies, content, or materials; and to indemnify our partners and other third parties. For example, we have in the past elected to develop and implement specific design changes to address potential risks that certain products could otherwise become subject to exclusion or cease and desist orders arising from patent infringement and other intellectual property claims brought in the U.S. International Trade Commission. In addition, any lawsuits regarding intellectual property rights, regardless of their success, could be expensive to resolve and would divert the time and attention of our management and technical personnel.56PatentU.S. patent laws, and the scope of coverage afforded by them, have recently been subject to significant changes, such as the change to “first-to-file” from “first-to-invent” resulting from the Leahy-Smith America Invents Act. This change in the determination of inventorship may result in inventors and companies having to file patent applications more frequently to preserve rights in their inventions, which may favor larger competitors that have the resources to file more patent applications. Another change to the patent laws may incentivize third parties to challenge any issued patent in the United States Patent and Trademark Office (“USPTO”), as opposed to having to bring such an action in U.S. federal court. Any invalidation of a patent claim could have a significant impact on our ability to protect the innovations contained within our devices and platform and could harm our business. to pay the applicable fees to obtain or maintain our patents. Noncompliance with these requirements can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to use our technologies and enter the market earlier than would otherwise have been the case.platform.and/or compliance with open source license terms. Therefore, we could be subject to suits by parties claiming ownership of what we believe to be open source software or noncompliance with open source licensing terms. Although we have processes and procedures designed to help monitor our use of open source software, these processes and procedures may not be followed by all of our employees or may fail to identify risks. Additionally, the terms of many open source software licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on the sale of our devices.devices or impose unanticipated obligations that57brandsbrand partners often involve the use of third-party technology, this increases our exposure to litigation in circumstances where there is a claim of infringement asserted against the streaming device in question, even if the claim does not pertain to our technology.weextent of which are unable to predict the extent to which the pandemichighly uncertain and related effects will continue to impact our business.unpredictable.*Beginning in the first quarter of 2020 and continuing into 2021, there has been widespread global impact from the COVID-19 pandemic, and ourwillis expected to continue to be, impacted by the ongoing COVID-19 pandemic and resulting economic consequences. The spread of COVID-19 has caused us to take precautionary measures intended to help minimize the risk of the virus to our employees, including mandatory work-from-home policies, suspending non-essential business travel and canceling physical participation in meetings, events and conferences. We may take further actions as required by government authorities or that we determine are in the best interests of our employees, TV brand partners, content publishers, advertisers, retail and distribution partners, contract manufacturers, services vendors and supply chain. There is no certainty that such measures will be sufficient to mitigate the risks posed by the COVID-19 pandemic, and a continuation of the extended period of remote work arrangements could disrupt our business, introduce business and operational risks, including cybersecurity risks, and could make it more difficult for us to effectively manage our business.The COVID-19 pandemic and the precautionary measures that we have taken in response have had a mixed impact on our business during the quarter ended March 31, 2021 and the year ended December 31, 2020. When staying-at-home restrictions were first issued in the first quarter of 2020, we saw an acceleration in both streaming hours which has moderated since peaking in early in the second quarter, and account activations.activations, which have both since moderated as restrictions have lifted and we believe consumers have increasingly pursued out-of-home entertainment activities. In our platform segment, we experienced increases in trials of and subscriptions to SVOD content, growth in the consumption of AVOD content, and increased purchases of transaction video on demand (“TVOD”) content. During the second quarter of 2020, we experienced delays in the start of some video advertising campaigns and an increase in advertising campaign cancellations. We also have encounteredaddition, global supply chain disruptions related to our players thathave resulted in elevated air freightshipping delays, increased shipping costs, component shortages, and increases in component prices. In the first quarter of 2022, increasing component costs put additional constraints on our player gross margin, resulting in a gross loss in the player segment. Although we do not believe that the cost constraints and supply chain issues are permanent, they may continue to replenish inventoryimpact us, and meet increased demand. Additionally, at timeswe expect our player gross margin to be negative in the near term. Furthermore, some of our retailTV brand partners have had to close or severely limit access tofaced inventory challenges that have negatively impacted their brick-and-mortar locations, resulting in reduced sale of devices in these locations. For example, during the holiday season our partners saw fewer shoppers in their brick-and-mortar locations. Further, our management team has focused on addressing the impacts of the COVID-19 pandemic on our business, which has requiredunit sales, and will continue to require, a significant investment of their time and resources, and has diverted their attention away from other aspectssome of our business. In light of the COVID-19 pandemic, during 2020advertising verticals experienced supply chain disruptions that negatively impacted their product availability and continuing into 2021 our management team took steps to slow the rate of growth of our operating expenses and capital expenditures. Our management team also monitored our liquidity andresulted in May 2020, we entered into the 2020 Equity Distribution Agreement, pursuant to which we sold 4.0 million shares of our Class A common stock at an average selling price of $126.01 per share, for aggregate gross proceeds of $504.0 million, a portion of which was used to repay the $69.3 million that we drew down on our Revolving Credit Facility in March 2020. In March 2021, we entered into the 2021 Equity Distribution Agreement, pursuant to which we sold 2.6 million shares of our Class A common stock at an average selling price of $379.26 per share, for aggregate gross proceeds of $1,000.0 million. Our management team will continue to evaluate our investments and initiatives throughout 2021 and will continue to monitor our liquidity as the COVID-19 pandemic continues to evolve.ultimately impactsmay continue to impact our businessoperational and financial performance remains uncertain and will depend on many factors outside our control, including the timing, extent, trajectory, and duration of the pandemic; the emergence, infectiousness, and severity of new variants; the development, availability, distribution, acceptance, use, and effectiveness of vaccines, vaccine boosters, and treatments; the imposition of protective public safety measures; the resolution of global supply chain disruptions; and the impact of the pandemic on the global economy and demand for consumer products. Additional future developments, whichimpacts on our business may include, but are uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions taken by governmental authorities to contain the virus or treat its impacts, the development and rollout of effective vaccines, possible variants of the virus that render vaccines ineffective, and how quickly and to what extent economic and operating conditions normalize. While there have recently been vaccines developed and administered, and the spread of COVID-19 may eventually be contained or mitigated, we cannot predict the timing of the vaccine roll-out globally or the efficacy of such vaccines, and we do not yet know how businesses, advertisers, or our partners will operate in a post-COVID-19 environment. Our users may change how they usematerial adverse effects on demand for our products and services, in an environment whereour supply chain, our ability to execute our strategic plans, and our profitability and cost structure.58perceived risk COVID-19 pandemic evolves, the direct and indirect impacts on global macro economic conditions, as well as conditions specific to us, are becoming more difficult to isolate or quantify. In addition, these direct and indirect factors can make it difficult to isolate and quantify the portion of COVID-19 and regulations surrounding it have changed. As staying-at-home restrictionsour costs that are eased, consumers may spend less time streaming TV, which could reduce our streaming hours and number of active accounts and also could negatively impact our platform revenue if we experience a decrease in sales of advertising or transactional revenue shares from content publishers. We also may incur significant operating costs and be exposed to increased liability risks as adirect result of the COVID-19 pandemic both now and increasingly as once staying-at-home restrictions are liftedcosts arising from factors that may have been influenced by the pandemic, including supply chain constraints, increased component prices, and employees begin to return tochanges in the spending pattern of advertisers. We expect these factors and their effects on our offices, such as the cost of collecting additional information (including health and medical information) about our employees, contractors and visitors at our facilities; and testing supplies and personal protective equipmentoperations may persist for on-site staff. In addition, with the increase in remote working during the COVID-19 pandemic, we may not be able to maintain the same level of control over the security of our systems or the personal information that we collect, store and process, particularly as cyber attackers appear to increasingly attempt to compromise systems and data in an effort to exploit this pandemic. Evena longer period, even after the COVID-19 pandemic itself has subsided, we may continue to experience impacts to our business as a result of any global economic impact, including as a result of an ongoing recession. For instance, a prolonged economic downturn may result insubsided.purchase of fewer streaming devices which could lead to a reduction in account activations and streaming hours, and also could negatively impact our revenue. Our platform business also may be negatively impacted by decreases in total advertising spend, if advertising budgets do not continue to shift to OTT advertising or if acquiring content that our users want to watch becomes more difficult or costly for us or our content partners as the amount of new content decreases due to the COVID-19 pandemic. A prolonged economic downturn could also impact the overall financial condition of our TV brand partners, content publishers, advertisers, retailers, contract manufacturers, services vendors and supply chain, all of whom we depend on in order to operate our business. As a result, the current level of uncertainty over the economic and operational impacts ofextent the COVID-19 pandemic means the impact onadversely affects our business, cannot be reasonably estimated atit may also have the effect of heightening many of the other risks described in this time.cyber-attack,cyber attack, war or foreign invasion (such as the Russian invasion of Ukraine), terrorist attack, medical epidemic or pandemic (such as the COVID-19 pandemic), other man-made disasters, orsuppliers,TV brand partners, could be vulnerable to the effects of climate change (such as sea level rise, drought, flooding, wildfires, and increased storm severity) that could disrupt our business operations. For example, in California, increasing intensity of drought and annual periods of wildfire danger increase the probability of planned power outages. Further, acts of terrorism could cause disruptions to the internet or the economy as a whole. If our streaming platform was to fail or be negatively impacted as a result of a natural disaster or other event, our ability to deliver streaming content, including advertising, to our users would be impaired. Disruptions in the operations of our contract manufacturers, suppliers, or TV brand partners as a result of a disaster or other catastrophic event could delay the manufacture and shipment of our playersproducts or other products,Roku TV models, which could impact our business. If we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a disaster or other catastrophic event and to execute successfully on those plans in the event of a disaster or catastrophic event, our business would be harmed.which may includeincluding laws and regulations related to data privacy and security, consumer protection, data localization, law enforcement access to data, encryption, telecommunications, social media, payment processing, taxation, trade, intellectual property, competition, electronic contracts, internet access, net neutrality, advertising, calling and texting, content restrictions, protection of children, and accessibility, among others. We cannot guarantee that we have been or will be fully compliant in every jurisdiction. Litigation and regulatory proceedings are inherently uncertain, and the federal, state, and foreign laws and regulations governing issues such as data privacy and security, payment processing, taxation, net neutrality, liability of providers of online services, video, telecommunications, e-commerce tariffs, and consumer protection related to the internet continue to develop. For example, laws relating to the liability of providers of online services for activities of their users and other third parties have been tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the advertisements posted, actions taken or not taken by providers in response to user activity or the content provided by users. The U.S. Congress has also59enacted legislation related to liability of providers of online services and may continue to legislate in this area. The CCPA and Nevada SPI Law also apply to entities that do business in California and Nevada, respectively, and impose a number of requirements on internet and online services. Moreover, as internet commerce and advertising continue to evolve, increasing regulation by federal, state, and foreign regulatory authorities becomes more likely.licenseesTV brand partners may be unable to sell Roku TV models at all, which wouldcould harm our business and our ability to grow our user base. existing bills are pending in the U.S. Congress and other government bodies that contain provisions that would regulate, for example, how companies can use cookies and other tracking technologies to collect, use, and share user information. TheCertain state laws, such as the CCPA, also imposesimpose requirements on certain tracking activity. The EU already has existing laws which are due for update in 2021, requiring advertisers or companies like ours to, for example, obtain unambiguous, affirmative consent from users for the placement of cookies or other tracking technologies and the delivery of relevant advertisements. In addition, EU institutions continue to negotiate the draft of the proposed Digital Services Act, legislation intended to update the liability and safety rules for digital platforms, products, and services. If we or the third parties that we work with, such as contract payment processing services, content publishers, vendors, or developers, violate or are alleged to violate applicable privacy or security laws, industry standards, our contractual obligations, or our policies, such violations and alleged violations may also put our users’ information at risk and could in turn harm our business and reputation and subject us to potential liability. Any of these consequences could cause our users, advertisers, or publishers to lose trust in us, which could harm our business. Furthermore, any failure on our part to comply with these laws may subject us to liability and reputational harm.The Federal Trade CommissionIn addition, the FTC has also in recent years revised initiated a review ofCOPPA Rules”COPPA”), which limits the collection by operators of online services of personal information from children under the age of 13. The review could result in broadening the applicability of the COPPA, Rules, including the types of information that are subject to these regulations,regulations. There have also been proposals in the U.S. Congress to amend and it is currently examining whether additional changes are appropriate. Such actionsexpand COPPA. Changes to the COPPA legislation or rules could limit the information that we or our content publishers and advertisers may collect and use through certain content publishers,and the content of advertisements and in relation to certain channel partner content. The CCPA and certain other state privacy laws also imposesimpose certain opt in and opt out requirements forbefore certain information about minors.minors can be collected. The EU and many of its member states, among other jurisdictions, also have rules that limit processing of personal data, including children’s data, and that impose specific requirements intended to protect children online. We and our content publishers and advertisers could be at risk for violation or alleged violation of these and other privacy, advertising, children’s online protection, or similar laws. geopolitical conditions, U.S. trade policies and other factors beyond our control may adversely impact our business and operating results.*and component suppliers, and other business partners are located. Our operations and performance depend significantly on global, regional, and U.S. economic and geopolitical conditions.there has been discussion and dialogue regarding potential significant changes to U.S. trade policies, legislation, treaties and tariffs. In November 2018, for example,tensions between the United States Mexico, and Canada signedChina have led to the United States-Mexico-Canada Agreement (“USMCA”) which superseded the North American Free Trade Agreement. The USMCA entered into force on July 1, 2020, although there are some remaining implementation issues with respect to ensuring that Mexico’s and Canada’s laws and regulations are fully in compliance with the USMCA obligations and commitments, and there may be further changes to interim regulations regarding customs procedures, rulesStates’ imposition of origin,a series of tariffs, sanctions, and other provisions that could affect products sourced from Mexico or Canada, and their eligibility for duty-free entry into the U.S., Mexican, and Canadian markets. In addition, there is a potential risk of Mexican or Canadian restrictions on OTT advertising and/imports from China and sourcing from certain Chinese persons or local content requirements. Whileentities, as well as other business restrictions. Additionally, following Russia’s invasion of Ukraine, the Office of the U.S. Trade Representative (“USTR”) has cited Mexico’s proposed restrictions as potential USMCA violations, these issues remain unresolved and could lead to a protracted USMCA dispute settlement proceeding, creating uncertainties for our business in both markets.The previous U.S. Administration threatened tougher trade terms with China, the European Union,United States and other countries includingimposed economic sanctions and severe export control restrictions against Russia and Belarus, and the imposition of substantially higher tariffs under Section 301 ofUnited States and other countries could impose wider sanctions and export restrictions and take other actions should the Trade Act of 1974 (“Section 301”) on roughly $320 billion of imports from China. In response, China imposed higher Chinese tariffs on a large amount of U.S.60exports to China, which could affectconflict further escalate. These and other geopolitical tensions and trade disputes can disrupt supply chains and increase the prices of U.S. origin parts or components of our products assembled in China. In January 2020, the U.S. and China signed a “Phase One” trade deal pursuant to which, among other things, the U.S. will modify its Section 301 tariff actions. As part of the Phase One agreement, the U.S. canceled additional Section 301 duties that were originally scheduled to go into effect in December 2019 on certain imported products, including certaincost of our products and reduced the duties on certain other importedcomponents required to manufacture our products, including televisions assembled in China byas well as costs for our Roku TV brand partners. This could cause our products and those of our Roku TV brand partners from 15% ad valoremto 7.5%. While the new U.S. Administration has promised a detailed review of U.S. policies toward China, it is unclear what the outcomes of the review will be or whether it could lead to additional U.S. tariffs, export controls, or sanctions. At this point, there are no signs the U.S. tariffs on imported TVs from China will be removed in the foreseeable future. Accordingly, at this time, it is unknown whether the Phase One deal will last or whether there will be sufficient progress on Phases Two and Three to lead to a further reduction in U.S.-China trade tensions, whether additional Section 301 tariffs will be imposed on Roku products imported from China if the Biden Administration concludes that China has not complied with its commitments under the Phase One agreement, and, if so, how long U.S. tariffs on Chinese goods will remain in effect or whether even higher tariffs will be imposed, or new regulatory proposals to restrict trade will be adopted. The Biden Administration has imposed new sanctionsmore expensive for China’s actions in Hong Kong and Xinjiang Province,consumers, which could lead to additional U.S. and Chinese sanctionsreduce the demand for or trade restrictions, or a resumptionattractiveness of trade hostilities, exposing us and our suppliers to increased tariffs or restrictions in the U.S. and Chinese markets.such products. In addition, a geopolitical conflict in a region where we operate could disrupt our ability to conduct business operations in that region. Beyond tariffs and sanctions, countries also could adopt other measures, such as controls on imports or exports of goods, technology, or data, which could adversely affect our operations and supply chain and limit our ability to offer our products and services as intended. These kinds of restrictions could be adopted with little to no advanced notice, and we may not be able to effectively mitigate the U.S. Administration has restricted imports of productsadverse impacts from Xinjiang Provincesuch measures. Political uncertainty surrounding trade or produced with forced labor by workers from Xinjiangother international disputes also could have a negative impact on consumer confidence and the U.S. Congress is considering legislationwillingness to further tighten the U.S. restrictions. Givenspend money, which could impair our future growth. In particular, given the general deterioration in U.S.-China relations and ongoing tensions on trade, security, and human rights, additional U.S. sanctions, tariffs,tariffs. and export or import restrictions, andas well as Chinese sanctions or retaliatory measures, remain a serious risk. Finally, there are questions regardingre-negotiated;renegotiated; whether new trade or tariff actions will be announced by the Biden Administration;Administration with other U.S. trading partners; or the effect that any such action would have, either positively or negatively, on our industry or our business or licensees. If any new legislation and/or regulations are implemented, or if existing trade agreements are renegotiated or terminated, or if tariffs are imposed on foreign-sourced or U.S. goods, it may be inefficient and expensive for us to alter our business operations in order to adapt to or comply with such changes, and higher prices could depress consumer demand. Such operational changes could have a material adverse effect on our business, financial condition, results of operations, or cash flows.On January 15, 2021, the USTR found that Vietnam’s currency practices violate Section 301 but deferred any decision whether to take any specific actions in connection with its findings, leaving the decision whether to impose higher U.S. tariffs or other trade restrictions to the Biden Administration. This decision could lead to increased tariffs on products assembled in Vietnam, but none have been announced as of this time. In addition, on October 2, 2020, the USTR initiated an investigation under Section 301 regarding Vietnam’s acts, policies, and practices related to the import and use of illegally harvested timber. While no decision has been reached yet in this investigation, as with China, USTR’s Section 301 investigations of Vietnam could lead to retaliatory tariffs on U.S. imports from Vietnam if the U.S. concerns cannot be resolved through negotiations. Such tariffs may not be limited to products directly involved in the acts, policies, and practices found to violate Section 301 (e.g., tropical timber) and thus could affect other, unrelated products, including those sourced by us or our suppliers and licensees.and/or strategic partners’ abilitypartners to implement our products in those countries. Changes in our products or future changes in export and import regulations may create delays in the introduction of our products in international markets, disrupt supply chains, prevent our commercial and/or strategic partners with international operations from deploying our products globally, or, in some cases, prevent the export or import of our products to certain countries, governments, or persons altogether. In particular, the U.S. government continues to expand export control and sanctions restrictions on China and Hong Kong, which may limit the company’s ability to collaborate with and transfer technology to partners in the region. Cross-border data transmissions are currently exempt from customs duties under the WTO’s temporary e-commerce moratorium on customs duties on electronic transmissions, but the moratorium faces opposition from certain WTO Members when it comes up for renewal at the WTO Ministerial Meeting, which was originally scheduled for June 2020. It has been postponed because of COVID-19 but is now scheduled to take place in November 2021, at which time a decision will be made by WTO Members whether to continue the moratorium. Other potential barriers include the further proliferation of digital services taxes in Europe and elsewhere which potentially could expose certain digital services to new taxes, as well as continued risks of U.S. or foreign sanctions or related sanctions legislation, increased export and import restrictions stemming from governmental policies or U.S.-China “de-coupling,” orAny changes in the countries, governments, persons, businesses, or technologies targeted61by U.S. or foreign regulations, restrictions, and sanctions. Any change in U.S. or foreign export or import regulations, customs duties, or other restrictions on intangible goods such(such as cross-border data flows,flows) could result in decreased use of our products by, or in our decreased ability to export or sell our products and services to, existing or new customers in U.S. or international markets or hamper our ability to source products, components, and parts from certain suppliers or lead to potential supply chain disruptions and business or reputational harms. Any decreased use of our products or limitation on our ability to export, import, or sell our products or services, or source parts and/or components, wouldcould harm our business. Further, followingAlthough we attempt to ensure that we, our retailers, and partners comply with the resultapplicable import, export, and sanctions laws, we2016,contravention of our requirements or instructions or the laws. Any such potential violation could have negative consequences, including government investigations or penalties, and our reputation, brand, and revenue may be harmed.Kingdom formally leftKingdom’s departure from the EU on January 31, 2020. The effects of Brexit have been and are expected to continue to be far-reaching. Brexit and the perceptions as to its impact may adversely affect business activity and economic conditions globally and could continue to contribute to instability in global financial markets.conditions. Brexit could also have the effect of disrupting the free movement of goods, services, and people between the United Kingdom and the EU. In addition,EU, and some disruptions have already occurred. Brexit could also lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which EU laws to replace or replicate. WhileAlthough the EU and United Kingdom have reached EU-UK Trade and Cooperation Agreementon theirthe EU-UK post-Brexit economic relationship which took effect on January 1, 2021, it is incomplete, and the full effects of Brexit are uncertain. Given these possibilities and others we may not anticipate, as well as the lack of comparable precedent, the full extent to which our business, results of operations, and financial condition could be adversely affected by Brexit is uncertain.The supply chains of our contract manufacturers and many of our licensees may source products, parts or components from China and other countries in the Asia-Pacific region. There are many uncertainties around the COVID-19 pandemic, including scientific and health issues, the unknown duration and extent of economic disruption in China and other markets in the region, and the impact on the Chinese, , and global economies. As a result, the COVID-19 pandemic may result in further supply shortages of our products or our licensees’ products, and delays in shipping and transportation services that negatively impact our ability or our licensees’ ability to import, export, ship, or sell streaming devices to customers in U.S. and international markets. Any decrease, limitations or delays on our or our licensees’ ability to produce, import, export, ship, or sell our streaming devices would harm our business.United States or international rules (or the absence of rules) that permit ISPsinternet access network operators to degrade users’ internet speeds or limit internet data consumption by users, including unreasonable discrimination in the provision of broadband internet access services, could harm our business.*In February Some jurisdictions have adopted regulations governing the provision of internet access service. Substantial uncertainty exists in the United States and elsewhere regarding such provisions. For example, in 2015, the FCC adopted open internet rules intended to protect the ability of consumers and content producers to send and receive non-harmful, lawful information on the internet, known as the Open Internet Order. The Open Internet Order prohibited broadbandprevent internet access service providers from: (i)network operators from unreasonably restricting, blocking, degrading, or charging for access to legalcertain products and services offered by us and our content applications, services or non-harmful devices; (ii) throttling, impairing or degrading performance based on content, applications, services or non-harmful devices; and (iii) charging more for favorable delivery of content or favoring self-provisioned content over third-party content (collectively, the “prohibited activities”). The Open Internet Order also prohibited broadband internet access service providers from unreasonably interfering with consumers’ ability to select, access and use the lawful content, applications, services or devices of their choosing as well as edge providers’ ability to make lawful content, applications, services or devices available to consumers. January 2018, the FCC released a new order, known as the Restoring Internet Freedom Order (the “Order”), that repealed most of those rules. More recently, the blocking, throttling, and paid prioritization restrictions adopted in the Open Internet Order. The Order reclassified broadband internet access service as a non-common carrier “information service” and repealed rules that had prohibited broadband internet access service providers from conducting the “prohibited activities” but continued to require broadband internet access service providers to be transparent about their policies and network management practices, and subjected discriminatory practices to case-by-case assessment under antitrust and consumer protection laws. Most portions of the Order went into effect in April 2018 and the remainder went into effect in June 2018. Numerous judicial challenges to the Order were filed, and in October 2019, the Court of Appeals for the District of Columbia Circuit upheld nearly all of the Order, but reversed the FCC’s decision to prohibit all state and local regulation targeted at broadband internet access service, requiring case by case determinations as to whether state and local regulation conflicts with the FCC’s rules. The court also requiredBiden Administration signed an executive order encouraging the FCC to reexamine three issues from the Order where it found insufficient analysis but allowed the Order to remain in effect pending the FCC’s review. The original parties were denied a rehearing by the full U.S. Court of Appeals for the D.C. Circuit in February 2020 and the period to seek review by the Supreme Court has ended. On remand, the FCC reaffirmed its existing approach in October 2020; however, four petitioners sought reconsideration of the FCC’s decision in February 2021,and the FCC subsequently filed a motion requesting that the D.C. Circuit hold the case in abeyance, which the62court granted.readopt comprehensive open internet rules. The FCC now newly organized following the inauguration of President Joe Biden, has yettherefore could consider adopting additional or modified rules to issue a decision in response to these petitions. To the extent the courts, the agencies or the states do not uphold or adopt sufficient safeguards to protect against discriminatory conduct,prevent internet access network operators may seekfrom unreasonably restricting, blocking, degrading, or charging for data and services. If network operators were to extract fees fromengage in restricting, blocking, degrading, or charging for access, it could impede our growth, result in a decline in our quality of service, cause us or our content publishers to deliver our trafficincur additional expense, or otherwise engageimpair our ability to attract and retain users, any of which could harm our business. Several states and foreign countries in blocking, throttling or other discriminatory practices, and our business could be harmed.Several stateswhich we operate also have adopted or are considering network neutrality legislation or regulation. For example, California’s legislation codifies portionsrules governing the provision of the FCC’s rescinded Open Internet Order. The U.S. Department of Justice filed suit in September 2018 to block implementation of the California law, and the California Attorney General agreed to delay implementation of the state law until the litigation is resolved. While the Department of Justice withdrew its challenge of the California net neutrality law in February 2021, the status of state net neutrality legislation remains uncertain because several broadband service provider trade associations also have sued California to invalidate its net neutrality law on grounds that the law is preempted by the Order, among other claims. Several states in addition to California have enacted net neutrality legislation and several governors have signed executive orders requiring broadband internet access service providers contracting with state agencies to adhere to network neutrality principles. The regulatory framework for network neutrality thus remains unsettled and is subject to ongoing federal litigation as well as federal and state legislative and regulatory activity.or(or their existing interpretations or applicationsapplications) could also hinder our operational flexibility, raise compliance costs, and result in additional liabilities for us, which may harm our business.Broadband internet providers are subject to government regulation and enforcement actions, and changes in current or future laws, regulations or enforcement actions that negatively impact our distributors or content publishers could harm our business.Upon the effective date of the FCC’s Restoring Internet Freedom Order, the FTC became the federal agency primarily responsible for regulating broadband privacy and data security in the United States. The FTC follows an enforcement-focused approach to regulating broadband privacy and security. Future FTC enforcement actions could cause us or our content publishers to alter advertising claims or alter or eliminate certain features or functionalities of our products or services which may harm our business. At the FCC, many broadband internet providers provide traditional telecommunications services that are subject to FCC and state rate regulation of intrastate telecommunications services, and are recipients of federal universal service fund payments, which are intended to subsidize telecommunications services in areas that are expensive to serve. Changes in rate regulations or in universal service funding rules, either at the federal or state level, could affect these broadband internet providers’ revenue and capital spending plans. In addition, various international regulatory bodies have jurisdiction over non-United States broadband internet providers. The Nevada SPI Law and the CCPA also apply to broadband internet providers that do business in Nevada and California, respectively. To the extent these broadband internet providers are adversely affected by laws or regulations regarding their business, products or service offerings, our business could be harmed.*TheWe rely on the statutory safe harbors, as set forth in the Digital Millennium Copyright Act (the “DMCA”) is intended, in part, to limit the liability of eligible service providers for caching, hosting or linking to, user content that includes materials that infringe copyrights or other rights. We rely on the protections provided by the DMCA in conducting our business. Similarly,and Section 230 of the Communications Decency Act (“Section 230”) protects online distribution platforms, such as ours, from actions taken underin the United States, and the E-Commerce Directive in Europe, for protection against liability for various laws that might otherwise impose liability on the platform provider for what content creators develop or the actions they take or inspire.However, thecaching, hosting, and linking activities. The DMCA, Section 230, and similar statutes and doctrines thaton which we rely on or may rely on in the future in the United States or international jurisdiction where we may operate, are subject to uncertain judicial interpretation and regulatory and legislative amendments. RegulatoryAny legislation or legislative changes, whether incourt rulings that limit the United States or in international jurisdictions where we may operate, may ultimatelyapplicability of these safe harbors could require us to take a different approach towardstoward content moderation on our platform, which could diminish the depth, breadth, and variety of content that we offer, and, in so doing, reduceinhibit our ability to generate advertising, revenue or user base.63the DMCA and Section 230 provide protections primarily in the United States. Ifif the rules around these statutes and doctrines change, if international jurisdictions refuse to apply similar protections, or if a court were to disagree with our application of those rules to our business, we could incur liabilityliabilities and our business could be harmed. If we become liable for these types of claims as a result of the content that is streamed over or the advertisements that are served through our platform, then our business may suffer. Litigation toinfluenced by the existence of types of claims or proceedings and are deterred from working with us as a consequence, thisit could impair our ability to maintain or expand our business, including through international expansion plans.Our involvement in any such legal matters now or in the future, could cause us to incur significant legal expenses and other costs, and be disruptive to our business.stock exchange on which our Class A common stock is listed, the SEC, The Nasdaq Global Select Market, or other regulatory authorities, which could require additional financial and management resources.*FASB,Financial Accounting Standards Board, the SEC, and other various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported results of operations and may even affect the reporting of transactions completed before the announcement or effectiveness of a change. It is difficult to predict the impact of future changes to accounting principles or our accounting policies, any of which could harm our business.collection of sales tax and payment of income taxes inand the various jurisdictions in which we do business,collection of indirect taxes, we could be exposed to unexpected costs, expenses, penalties, and fees as a result of our noncompliance, which could harm our business.By engaging in business activities in the United States, we becomevarious jurisdiction laws and regulations, including requirements to collect sales tax from our sales within those jurisdictions, and the payment ofdeduct or withhold income taxes on revenue generatedsourced in various jurisdictions, pay income taxes on profits earned by any permanent establishment (or similar enterprise) of ours that carries on business in various jurisdictions, and collect indirect taxes from activitiesour sales in thosevarious jurisdictions. The laws and regulations governing the collection of sales tax for sales on our websitewithholding and payment of income taxes and the collection of indirect taxes are numerous, complex, and vary by jurisdiction. A successful assertion by one or more jurisdictions that we were required to collect saleswithhold or otherpay income taxes or to pay incomecollect indirect taxes where we did not could result in substantial tax liabilities, fees, and expenses, including substantial interest and penalty charges, which could harm our business.64*Reformingtaxation of international businesses has been a priority forUnited States and numerous foreign jurisdictions. Current economic and political conditions make tax laws and regulations, or their interpretation and application, in any jurisdiction subject to significant change.politicians, and key members of the legislative and executive branches, and a wide variety of changes has been proposed or enacted. Certain changes to U.S.foreign tax laws could affect the tax treatment of oursignificantly impact how U.S. multinational corporations are taxed on foreign earnings as well as cash and cash equivalent balances we maintain outside the United States. Additionally, any changes incould increase the U.S. corporate tax rate. Although we cannot predict whether or foreign taxationin what worldwide effective tax rate, income tax expense, and the amount of taxes we pay and harm our business.Legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act (“TCJA”), as modified by legislation enacted on March 27, 2020, entitled the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), significantly reformed the Internal Revenue Code of 1986, as amended. The TCJA, as modified by the CARES Act, alters U.S. federal tax rates, imposes additional limitations on the deductibility of interest, allows for the expensing of certain capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. Additionally, the TCJA, as modified by the CARES Act, has both positive and negative changes to the utilization of future net operating loss carryforwards. For example, U.S. federal NOLs incurred in taxable years beginning after December 31, 2017, can be carried forward indefinitely, but the deductibility of such U.S. federal NOLs in taxable years beginning after December 31, 2020 is limited to 80% of taxable income. The U.S. Department of Treasury has broad authority to issue regulations and interpretative guidance that may significantly impact how we will apply the law, which could affect our financial position and result of operations. It is uncertain if and to what extent various states will conform to the TCJA and the CARES Act.an increasing number ofboth tax policy and tax administration are becoming multilateral. This multilateralism and collaboration among taxing authorities (including the U.S. and many foreign jurisdictions are considering or have adopted laws or administrative practices that imposein which we operate) has resulted in proposed new tax measures including revenue-based taxesspecifically targeting online commerce, digital services, streaming services, and the remote sellingsale of goods and services. These include new obligationsSome of these measures (such as a global corporate minimum tax) require adoption of local legislation consistent with the agreed to collect sales, consumption, value added,multilateral framework. Other measures (such as digital services taxes) have already been implemented but may terminate upon the adoption of multilateral tax rules.other taxescomplementary interest. The results of any such audits or related disputes could have an adverse effect on online marketplaces and remote sellers,our financial results for the period or other requirements that may result in liabilityperiods for third-party obligations.which the applicable final determinations are made. For example, Maryland recently passed legislation establishing a tax on certain advertising activitieswe and in the EU, certain member states, and other countries have adopted or proposed taxes on digital advertising and marketplace service revenue. The OECD and G-20our subsidiaries are currently engaged in negotiations over an Inclusive Framework on “Base Erosionintercompany transactions across multiple tax jurisdictions. Although we believe we have clearly reflected the economics of these transactions and Profit Shifting” (BEPS). The talks particularly target digital businesses, involve 135 countries,that the proper local transfer pricing is in place, tax authorities may propose and could significantly alter the rules on international taxation of multinational and digital enterprises. Our results of operations and cash flows could be adversely affected by additional taxes of this nature imposed on us prospectively or retroactively or additional taxes or penalties resulting from the failure to comply with any collection obligations. The United States has threatened to impose retaliatory duties under Section 301 on imports from countriessustain adjustments that adopt digital services taxes, which could result in increased trade tensions and potential retaliation by foreign governments against U.S. digital services or technologies, which could disruptchanges that may impact our U.S. or international businesses.We continue to examine the impact these and othermix of earnings in countries with differing statutory tax reforms may have on our business. The impact of these and other tax reforms is uncertain and one or more of these or similar measures could seriously harm our business. For example, in the past, we responded to requests for information made by staff from the SEC.as contained in our amended and restated certificate of incorporation has the effect of concentratingconcentrates voting control with those stockholders who held our stock prior to our initial public offering, including our executive officers, employees, and directors and their affiliates, and limiting yourlimits the ability of holders of our Class A common stock to influence corporate matters.*6550%a majority of the outstanding shares of our common stock. Because of the 10-to-1 voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock even when the shares of Class B common stock represent as little as 10% of all outstanding shares of our Class A and Class B common stock. This concentrated control will limit yourthe ability of holders of our Class A common stock to influence corporate matters for the foreseeable future, and, as a result, the market price of our Class A common stock could be adversely affected.2021,2022, Mr. Wood controls a majority of the combined voting power of our Class A and Class B common stock even though he only owns 13%12% of the outstanding Class A and Class B common stock. As a board member, Mr. Wood owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, even a controlling stockholder, Mr. Wood is entitled to vote his shares in his own interests, which may not always be in the interests of our stockholders generally. This concentrated control could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of our assets that our other stockholders support, or conversely this concentrated control could result in the consummation of such a transaction that our other stockholders do not support. This concentrated control could also discourage a potential investor from acquiring our Class A common*•actual or anticipated fluctuations in our financial condition and operating results;•changes in projected operational and•actual or anticipated fluctuations in our financial condition and operating results;•loss by us of key content publishers;•changes in laws or regulations applicable to our devices or platform;•the commencement or conclusion of legal proceedings that involve us;•actual or anticipated changes in our growth rate relative to our competitors;•announcements of new products or services by us•actual or anticipated changes in our growth rate relative to our competitors;•announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures;•capital-raising activities or commitments;•additions or departures of key personnel;•issuance of new or updated research or reports by securities analysts;•the use by investors or analysts of third-party data regarding our business that may not reflect our financial performance;•fluctuations in the valuation of companies perceived by investors to be comparable to us;•sales of our Class A common stock, including short selling of our Class A common stock;•share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; and•general economic and market conditions.66We may be the targetFor example, a stockholder has filed a derivative lawsuit, purportedly on our behalf, against certain members of this typeour Board of litigationDirectors and management in the future, whichDelaware Court of Chancery. Such litigation could result in substantial costs and divert our management’s attention from other business concerns.other service providers, and directorscertain contingent workers are subject to our quarterly trading window, which generally opens at the start of the second full trading day after the public dissemination of our annual or quarterly financial results and closes (i) with respect to the first, second, and third quarter of each year, at the end of the fifteenth day of the last month of the such quarter and (ii) with respect to the fourth quarter of each year, at the end of the trading day on the Wednesday before Thanksgiving. These directors, employees, service providers and directorscontingent workers may also sell shares during a closed window periodsperiod pursuant to trading plans that comply with the requirements of Rule 10b5-1(c)(1) under the Exchange Act. When these shares are issued and subsequently sold, it would beis dilutive to existing stockholders and the trading price of our Class A common stock could decline.regulations implemented by the SEC and The Nasdaq Global Select Market regulations, may increase legal and financial compliance costs and make some activities more time consuming. These laws, regulations, and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If, notwithstanding our efforts, we fail to comply with new laws, regulations, and standards, regulatory authorities may initiate legal proceedings against us, and our business may be harmed.67inof our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our management or hinder efforts to acquire a controlling interest in us, and the market price of our Class A common stock may be lower as a result.third-partythird party to acquire, or attempt to acquire, control of Roku, even if a change in control was considered favorable by our stockholders.•establishing a classified Board of Directors so that not all members of our Board of Directors are elected at one time;•permitting the Board of Directors to establish the number of directors and fill any vacancies and newly created directorships;•providing that directors may only be removed for cause;•prohibiting cumulative voting for directors;•requiring super-majority voting to amend some provisions in our certificate of incorporation and bylaws;•authorizing the issuance of “blank check” preferred stock that our Board of Directors could use to implement a stockholder rights plan;•eliminating the ability of stockholders to call special meetings of stockholders;•prohibiting stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; and•reflecting our two classes of common stock as described above.the provisions of Section 203 of the Delaware General Corporation Law, which prohibitprohibits a person who owns 15% or more of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. Any provision in our certificate of incorporation or our bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock and could also affect the price that some investors are willing to pay for our Class A common stock. amended and restated certificate of incorporation provides that the Delaware Court of Chancery ofand the State of Delaware and theU.S. federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees. amended and restated certificate of incorporation provides that the Delaware Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:•any derivative action or proceeding brought on our behalf;•any action asserting a breach of fiduciary duty;•any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our bylaws;•or any action asserting a claim against us that is governed by the internal affairs doctrine.amended and restated certificate of incorporation provides that the U.S. federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of68 In December 2018, the Delaware Chancery Court issued a ruling invalidating such provision, which we appealed to the Supreme Court of the State of Delaware. In March 2020, the Supreme Court of the State of Delaware reversed the ruling of the Delaware Chancery Court and held that the federal forum provision in our amended and restated certificate of incorporation is facially valid.amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.exclusive-forumexclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for certain disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. If a court were to find either exclusive-forumexclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving such action in other jurisdictions, all of which could harm our business.Proceeds.Securities.Disclosures.Information.69Exhibits.
Exhibits#Indicates management contract or compensatory plan, contract or agreement.*Filed herewith.* Incorporation by reference Description Form SEC File No. Exhibit Filing Date Filed Herewith 3.1 8-K 001-38211 3.1 10/03/2017 3.2 S-1/A 333-220318 3.4 9/18/2017 4.1 4.2 S-1/A 333-220318 4.1 9/18/2017 10.1 X 10.2 X 10.3 X 31.1 X 31.2 X 32.1* X 32.2* X 101.INS X 101.SCH Inline XBRL Taxonomy Extension Schema Document X 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X 104 The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, has been formatted in Inline XBRL. on Form 10-Q and are not deemed filed with the Securities and Exchange Commission and are not incorporated by reference in any filing of Roku, Inc. under the Securities Act of 1933, as amended, or the Securities and Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filings.70as amended, the registrant has duly caused this reportQuarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.Roku, Inc.Roku, Inc. Date: May 7, 2021April 29, 2022May 7, 202171